Retails traders have struggled, as many on TPP have came good.
March 30, 2022
This week's midweek commentary is titled:
'A Difficult Start To The Year For Traders.’
The professional traders at TPP are showing profits again, but elsewhere inexperienced retail accounts have liquidated after suffering heavy losses.
“I would like particularly new entrants to the stock market to ponder just a bit before they try and do 30 or 40 trades a day in order to profit from what looks like an easy game.” Warren Buffett
The retail trading surge that began with pandemic lockdowns has now abated in the US, as total equity volume from individual investors fell to 19% in the third quarter, down from 24% at the start of 2021, according to Securities and Exchange Commission.
“We expect most individual investors to transition to long-term strategies as day-trader losses mount,” BI’s Jackson Gutenplan wrote in a note.
“Retail volume could continue to backpedal as over-trading leads to losses, especially if markets remain choppy or correct.”
BI’s data mirrors reports from online brokers Fidelity, Robinhood and Charles Schwab, all of which have seen retail numbers drop.
Anecdotal evidence shows individual investors had many reasons for backing away from their stock screens, including big losses, a desire for more education and less time to monitor the market as they return to the office.
The interest in trading really took off in the US during the pandemic and as we saw a rise in equity valuations, some of them may have made money.
However, as things move back towards the norm after a recent correction and high volatility, many retail traders will have lost everything in their accounts due to overleveraging, and not understanding the consequences of their actions.
Nearly all professional funds will have also lost money recently, but limiting the losses so that you’re able to make better returns down the line is absolutely key in times like this. Joining the herd and buying because of FOMO could only add to losses.
Studies show that between 70%-90% of non-professional traders lose money; and most lose everything they put in. If it sounds a lot like a Betfair account, that’s because it is.
Our traders at The Portfolio Platform are professionals with historic performance records that show consistent results. They won’t be right all of the time, and recently we have seen drawdowns, but minimising those drawdowns during the current conflict has been hard work. Despite this, we would expect them all to continue to produce solid returns as the consequences of the invasion dissipate.
We are already seeing profits being booked gradually as opportunities arise. Long may this continue and if it does, we would expect 2022 to be another highly profitable year.
Annual return = percentage return divided by the number of years since the strategy’s inception.
Although many amateur traders may have moved to the side-lines, their involvement still remains historically high. Data suggests that there was incrementally more retail participation in October than September towards the end of last year, BI said. Indeed, retail traders likely played a role in the S&P 500’s 7% rebound last October after the September’s selloff and again over the last couple of weeks.
“Commission-free transactions continue to elevate participation, but any market correction could lead to unexpected losses for day traders and discourage individuals,” the analysts wrote.
As we’ve explained before, the concept of ‘commission-free’ trading is merely a gimmick to lure inexperienced traders onto their platforms and take their money. All betting sites are happier to have gamblers that don’t know what they’re doing than those who do.
They make money every time you trade via the bid/offer spread, and many will also take the opposing side of your trade knowing that the highest percentage probability is that you will lose money. It’s a sad truth that needs to be realised.
This said, a volatile start to the year for global stock markets has breathed new life into U.K. trading platforms, which had seen fading interest amid less stringent pandemic restrictions. The ‘buy the dip’ mentality always brings in investors.
The fact is, this is a solid strategy, but only as long as your views are long term. You have to be prepared to lose money in the short term before the value of your investment increases – nobody gets to buy the bottom!
In the UK we are always several years behind the US in terms of progressive investing. It could therefore simply be that we are catching up. The ‘craze’ that is trading, may be trending upwards over here but is still well below the 20% market share that it is in the US.
Market drops will always provide opportunities. Often knowing too much, and over thinking, will mean professionally managed funds can be too afraid to buy into dips – being only too aware of the potential consequences. Stepping back when you should be stepping forward will always mean missing opportunities, but it should also mean missing big losses which is just as important.
However, the retail mindset is much less concerned, partially because they only see an number that is lower than it was, and therefore must be a ‘buy’. Having no real understanding of what could happen, or never having experienced major economic events before, can provide the misplaced confidence to do things others wouldn’t.
But much like in a casino, one or two wins, doesn’t mean you walk out with your money!
CMC’s Fineberg said in an interview that January’s market swings are more manageable than those seen in 2020, with customer accounts less likely to be liquidated.
“They present opportunities, but they’re not flash crashes whereby you can potentially lose part of your client base,” he said.
The swings worsened in February after the invasion and many accounts have since liquidated locking in large losses.
This pretty much sums up the attitude of retail brokers. Big crashes mean client accounts liquidate (lose all their money), and this is bad for business.
The lack of empathy to the account holder who has lost everything is remarkable. Brokers should be doing more to educate inexperienced ‘traders’, but putting them off would just be bad for business.
Trading is not an easy job, and three quarters of people fail, the other quarter may do ok, but very very few will do well.
This is the very reason we built TPP. We built it to help. Active trading is becoming more popular, and this means investors are losing money. We have found the best traders we can, to do the trading for you.
They all have a minimum of a decade’s worth of experience in the market, most have much more; on top of that they all have the track records to go with it.
Yes there will be drawdowns, our traders will be right most of the time, but not all of the time. However, over longer periods, we expect results. Recently, the conflict caused a devaluation of equities across the globe and portfolios lost money. This happens but it won’t last.
Many portfolios have since started to bounce back. It’s all part of the job and our traders move past it and focus on future profits.
Limit losses on the bad months, and reap bigger rewards on the good ones. Over time, this is how actively traded portfolios are profitable.
We built The Portfolio Platform to help. We only showcase the best strategies we can find. Build your portfolio, and let it go to work. If you would like to know more, please contact us
“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020