The Majority of Day Traders Lose

Among listed spread betting companies, London Capital Group reported a sharp rise in the number of clients in 2007, with the number of new accounts more than doubling to 22,000.

Currently about 80% of all Capital Spreads clients lose. They lose on average £2600 per annum. They turn away large numbers of prospective clients, the ones they take on 'spend more on the golf course'. It's a hobby.
Up to last August longer term 'betters' made the most money, now it's the day-traders.
On average Capital Spreads clients spend 4.6 hours logged on a day (so loss per hour is small).
In the first half 2007 the average bet £pp was £6, in the second half it was £4.3p i.e. in difficult times people just risk less.
Their profit per client isn't falling, their cash position is improving (people putting more money in rather than winnings).

In general (so we are told) the spreadbet bookie doesn't make any greater profit from a losing bet than from a winning bet. But they do gain from the greater churn involved if tripped-out players keep returning to re-open stopped bets. One million people in the UK have tried spread-betting on movements in world stock markets.

Simon Denham, MD of Capital Spreads does not shy away from exposing the risks for spread betting and leverage for the unwary -:
'For those who came along to our seminars I was renowned for pointing out time and again that for Private Clients trading in the financial markets is difficult and that some 80% lose money. This is not unique to spread betting but is also the percentage who lose using the direct access that so many commentators like to crow about. I have also repeated this statement many times. If trading was easy we would all be millionaires. If you look across the financial landscape why do you think that it is generally the brokers who own the yachts? The men in the middle always get their turn no matter which way the markets go. Spread betting providers make markets, we do not recommend any trades we merely give people the opportunity to make trades.'

'Even the most experienced day traders expect to make money on only about 30 to 40 per cent of their trades, says Simon Denham, a director with the firm Capital Spreads. But the flipside is these traders tend to make three to four times the average profit of punters on winning trades' he claims. 'My best advice to anyone is after three months, if you haven't made any money or it's not been worth the time and investment you put into it, then give it up,' concludes Mr Denham. 'Don't love your position because your position doesn't love you.'

The IG Index annual results in July made fascinating reading didn't they?

The best month for the year for IG was April 2008 because it was so volatile. Overall the year's revenue was up 51% at Ł184m
The average spread-betting customer is a 37-year-old bloke with disposable funds of between Ł10,000 and Ł50,000. (‘Include me out’ as President Eisenhower used to say).
Bad debts rose as more clients got financially wiped out. But as they jumped from their window ledges, IG's relentless recruitment campaign continued to pull in eager new replacements – ‘the most significant driver of IG revenue growth’. Last year client numbers almost doubled.
Those new clients only cost around Ł150 to sign up but once on IG's books they s really deliver for IG - average revenue per client is Ł3,064.

So what's really happening here?

It is a fact that most people that getting involved with financial spread betting do so without any real plan. They just blindly throw their money in anything that seems to be going up or down (mostly up) and foolishly believe when they're losing money that the tide will turn so add more money to it, or trade the opposite direction. This is a losing strategy. There are ways to what is called 'Hedge' but don't do it blindly to recoup a loss. Before they know it they have lost their deposit, returned to the pub and complained that it's all a con. Let’s get this straight – 80% of spread bets aren’t losing bets or the spread betting providers would be changing the odds or narrowing the spreads in the clients favour because they don’t want clients to lose everytime. Its 80 per cent of accounts that are net losers.

How to lose money on spread betting

Too many bets, too many trades (overtrading), too few people putting stop losses in place and sticking with them (bad money management). Too little attention paid to moving those stops (discipline)… so people are often closed out at the wrong time. Too little research done on companies you’re putting the bets on. Forget not catching a falling knife…some people are betting on the knife once it’s hit the floor and wondering why it won’t drop any further. In short, the way you lose on any share trading - too much impulse and not enough research - that’s how to lose on spread betting. Be a contrarion, understand herd behaviour, do your research and learn how to win your spread bets!