Retail brokers generally state that around 75% of retail investors lose money - the majority of these losses are in the spread value of their trades (because they are trading on wide spreads) rather than because they call the market wrong.
However, studies have shown that over the long-term (if you take out transaction costs and spreads), clients’ trading P&L is generally no better or worse than that of their brokers.
May volumes were very similar to April totals, but still far below the highs reached in February and March. Although volumes were in line with April, profits were far lower. Losses in oil suppressed profitability in the early weeks of May as the majority of retail clients held their long positions into the rally at the start of the month. Movements in indices later in May helped salvage respectable, though below average, overall profits for the month.
April saw broker volumes fall off significantly from the near-record numbers recorded in February and March. Profits, though down as well, were respectable as a result primarily of mid-month moves in oil markets that saw prices fall briefly into negative territory. Profits were also buoyed by movements in gold and US indices. Oil prices will likely be in focus again in May as we approach the expiration of this month’s futures contract.
The recent rise in market volatility has left all brokers susceptible to being taken advantage of by predatory traders but this is particularly true for startups and smaller brokers. While the opportunities for traders to attempt to exploit brokers have always existed, current market conditions have exacerbated the risk with strategies ranging from weekend gap loading to depth of book and spread arbitrage.
Volume totals in March matched the strong numbers from February, though daily figures trailed off late in the month. Daily profit figures also softened in the second half of the month, but monthly totals exceeded February as volatility in a broad range of markets brought strong early month results. After the turbulent market movements in February and March, volatility will likely continue while markets try to discover their true bottom.
February was an excellent month for brokers as Covid-19 coronavirus fears brought volatility to a wide range of markets. Volumes were up substantially from January, with some brokers reaching record monthly totals.
Profits were also robust, driven primarily by late month declines in stock indices and gold. With the uncertainty surrounding coronavirus continuing, the volatility may persist well into March, if not longer.