Tired of losing in the cryptocurrency market and stock market? Crypto expert Marcel Pechman explains 2 reasons why retail investors always lose.
Individual cryptocurrency and stock market traders often lose?
A quick scroll through Twitter, any social media investment club, or investment-themed Reddit will quickly find a handful of traders who have been massively successful over the course of a month, semester, or even a year. Believe it or not, most successful traders use cherry picking periods or different accounts at the same time to make sure there is always a winning position to display.
On the other hand, millions of traders are blasting their portfolios, especially when using leverage. Then he returns empty-handed. Take, for example, the United Kingdom’s Financial Conduct Authority (FCA), which requires brokers to disclose the percentage of nonprofit derivatives trading accounts in the region. According to the data, 69% to 84% of individual investors lose money.
Similarly, a study by the US Securities and Exchange Commission (SEC) shows that 70% of stock traders lose money every three months. Also, eToro, a multinational broker with 27 million users, reveals that around 80% of retail investors lose money within 12 months.
The same model is popping up in every market across different continents and decades. Individual cryptocurrency and stock market traders rarely maintain profitable operations. Still, novice and experienced investors feel they can overcome this bias due to creativity or mass marketing campaigns from influencers, exchanges and algorithmic trading systems. Below are the 4 culprits behind the inevitable failure of individual traders.
Outages and trade returns on exchange servers
In June 2021, the U.S. Financial Industry Regulatory Authority fined Robinhood $70 million for alleged “widespread and significant damage” and “false information to its millions of customers” as of September 2016. Specifically, the regulator cited the platform’s disruptions between 2018 and 2021. This has impacted on customers’ ability to fulfill their trade orders during periods of significant market volatility.
On March 8, 2022, the London Metal Exchange (LME), Europe’s largest commodity trading centre, canceled all nickel futures. In this context, it delayed the delivery of all physically arranged contracts. The reason, Bloomberg put it, was “unprofitable short positions in a huge squeeze that engulfed the largest nickel producer as well as a major Chinese bank.”
Note that such a decision is much worse for a broker who deliberately decides to stop their platform. In these cases, it is at least possible for the customer to choose another vehicle. A return or cancellation of a trade is much more problematic. Because users were already waiting for profits. Maybe they even hedged. This means that trading is part of a broader strategy.
High frequency trading and unlimited financing
Professional traders place a server as close to an exchange’s data center as possible. They also use colocation servers as it significantly reduces transmission delays. These exchanges provide top-notch clients with top-notch services.
Significant volumes are needed to cover costs. Besides that, colocation servers give high-frequency traders the advantage of running strategies like pings that use a series of smaller orders. These arbitrage traders are heavily funded. In addition, they often have additional financing from exchanges. These benefits basically mean unsecured trading, like having a loan. Thus, they provide a great advantage over individual investors.
Evidence? Bankruptcy of Three Arrows Capital (3AC), which you know from Kriptokoin.com. This bankruptcy had a negative impact on the Deribit exchange, which had to cover the loss. Also, there is Roger Ver, the leading Bitcoin Cash (BCH) figure. CoinFLEX exchange, which allegedly owes money due to liquidations, is suing Roger Ver. Individual cryptocurrency traders need to understand that there is no room for amateurs. They need to recognize the complex relationship between stock markets, venture capitalists, market makers and whales. Whether it’s a partnership on paper or not, it’s mutually beneficial. This allows players to have pre-seed funding rounds, listings and preferential access to the marketplace.
The only way for cryptocurrency and stock market traders to avoid losing is to give up on trading. Also, stay away from leverage trading like the plague. In reality, investors with a maturity of six months or longer have a good chance of being profitable on each of their positions.
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