5 Reasons Why Retail Traders Lose And 10 Ways To Preserve Your Capital


If you sign up to any CFD provider you will see disclaimers such as ’75% of traders lose money trading CFD’s on this platform’. That’s a lot! But why does it happen? There are a number of factors which I’ll cover below.


𝟭) 𝗦𝗵𝗼𝗿𝘁𝗶𝗻𝗴 '𝘁𝗼𝗽𝘀' 𝗮𝗻𝗱 𝗯𝘂𝘆𝗶𝗻𝗴 '𝗯𝗼𝘁𝘁𝗼𝗺𝘀'.


Retail traders tend to do the opposite of the market. You’ve probably heard the term ‘The trend is your friend’. Well, believe it or not retail traders inherently try to pick tops and bottoms of markets as ‘it’s gone too high, or it’s gone too low’. They try to time the swings and mostly always get it wrong.


𝟮) 𝗟𝗲𝘃𝗲𝗿𝗮𝗴𝗲!


As retail traders we look at it as a way to build our accounts faster and make more money. If the prior is true then surely it works both ways? We can also lose money just as quick. When you apply leverage you trade on margin which means you need a certain amount of equity in your account in case the position moves against you or alternatively some brokers like eToro require a stop loss in place, this is to keep you from losing too much money. Now if you apply a x2 leverage it’s not so bad, you can use a wide stop. With high leverage you need a tight stop and this is where the danger comes in. As I mentioned above, traders pick tops and bottoms in markets, so when they are wrong (most of the time) these stops get taken out as the market moves against them.


𝟯) 𝗟𝗶𝘀𝘁𝗲𝗻𝗶𝗻𝗴 𝘁𝗼 𝗼𝘁𝗵𝗲𝗿𝘀.


Now this may seem like a contradictory point when I want people to Follow My Trades but the reality is no one knows what way the market will go in the next hour let alone the next month. If you were to believe what you read on twitter or trading groups you’d think we were entering another great depression every time the market drops 1%. Unless someone backs up their claims with statistical or historical data ignore it. Even then we are just using previous data to help make a call on the future, no system or theory is 100% correct.


𝟰) 𝗚𝗼𝗶𝗻𝗴 𝗮𝗹𝗹 𝗶𝗻.


People get hyped on one stock, I see it all the time. Gamestop, Tesla, Nio, Hertz (when they went bankrupt) And even the most recent IPOs. People throw all their equity into one stock. Yes, you may get lucky but most people will likely lose money as they get in to the stock too late and combine it with leverage!


𝟱) 𝗛𝗮𝘃𝗶𝗻𝗴 𝗻𝗼 𝗽𝗮𝘁𝗶𝗲𝗻𝗰𝗲. Trading is not a get rich quick scheme, in fact you’re more likely to go broke chasing money. So if you’re in it to be a millionaire this time next year you better start sending your CV off! Warren Buffet once said "The stock market is a device for transferring money from the impatient to the patient”.


This list isn’t exhaustive by any means but it covers some of the main points as to why people lose money.

Here are my 10 suggestions on how not to lose money: 1) Detachment. The first key to successful trading or investing is to detach yourself from the money in your account. The main way to do this is to ensure the money you are trading with is money you CAN afford to lose. If you need that money to pay bills or rent, when the market turns or you lose a trade you will be inclined to increase leverage on the next trade to make up the loss. This can quickly spiral out of control.


2) 𝗗𝗼𝗻’𝘁 𝘂𝘀𝗲 𝗹𝗲𝘃𝗲𝗿𝗮𝗴𝗲 𝗮𝗻𝗱 𝗮𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝗯𝘂𝘆 𝘁𝗵𝗲 𝘂𝗻𝗱𝗲𝗿𝗹𝘆𝗶𝗻𝗴 𝗮𝘀𝘀𝗲𝘁. Yes, it will take longer to grow your account, but it’s better than losing it all. If you’re not using leverage you don’t need to use a stop loss or if you do you can put it where ever you want but my advice is to anticipate swings and keep them as wide as possible. My average stop (if I use them) is around 30% below my entry. If markets move that much against me my analysis is wrong, there is a fundamental issue with the company or the markets are crashing due to a bigger more powerful outside influence.


3) 𝗜𝗻𝘃𝗲𝘀𝘁 𝗶𝗻 𝗵𝗶𝗴𝗵 𝗾𝘂𝗮𝗹𝗶𝘁𝘆 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀. With the introduction of fractional shares from companies like eToro anyone can buy a piece of Apple, Tesla, Microsoft etc. Invest in companies that dominate markets and have a high barrier to entry. Investing can detach us from the realities of the company. Always look at it as if you are owning a piece of that empire. Your money is helping build it and you want your money to grow!


4) 𝗗𝗶𝘃𝗲𝗿𝘀𝗶𝗳𝘆. Spread your money around, even the greatest of empires can crumble and fall so you don’t want all your eggs in one basket.


5) 𝗕𝗲 𝗽𝗮𝘁𝗶𝗲𝗻𝘁. Markets move up and down! They have done since inception. I won’t dwell on this point but if you google compound interest calculator and have a play around you can see how much money you can make over the next 10, 20 or 30 years. You’ll be amazed how money makes more money over time.

6) 𝗙𝗢𝗠𝗢! It can be very easy to get swept up in the hype of a stock that ‘can only go up’. You need to ignore the noise and follow facts. Someone always gets left 'holding the bag'.


7) Don’t listen to others. It can be very easy to get swept up in the hype of a stock that ‘can only go up’. You need to ignore the noise and follow facts.


8) Be realistic. In 2020 we saw a lot of traders make incredible gains. Remember this is not the norm. If you’re new to the markets you may assume that you can make 100% year on year. All it takes is a small drop in some of hype stocks like $NIO and you’ll see people losing a lot of the equity due to being over exposed and over leveraged in one stock. The average return of the S&P 500 since inception is around 11%. If you can beat the benchmark year on year you're doing incredibly well.


9) Understand that you WILL lose. Everyone and I mean absolutely everyone loses trades, everyone will have bad months and bad years. That is a FACT. You need to accept that you won’t always be right and understand that it is ok to lose trades. You need to be ready to cut loses! This is why risk management is so important.


10) Be open minded. You may think a company is the best thing since sliced bread, but you need to be willing to change your bias. Changing your view doesn’t make your original decision wrong. It shows you’re willing to adapt to a change in the markets. Diamond hands won't stop you going broke.


Trading and investing can appear easy but it’s far from it. It takes a lot of time and effort to learn how the markets operate but it’s time well spent. This is what makes eToro a great place for new investors, you can follow and copy experienced traders with the click of a button! Good luck on your investment journey.


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