Why do so many spread betters lose money?

Why do so many spread betters end up losing money – even the most consistent ones?

Much of the information I obtained was from various sites but some very interesting stats were from a Financial Spread Betting company “Manager” whom I came across on the T2W (Trade 2 Win) website forums.

I heard this from on particular trader who claimed to have been winning consistently for years.

“I allocated an account for playing with when i was getting over-emotional elsewhere. More than quadrupled it then lost the lot in a three-trade run of idiocy, but it did it’s job as the more serious trades got back on-track.”

This is probably the most common way that consistently large winners eventually lose. The example used in the article I read was that of a fellow who won so often that he had in the region of £300k running profit in his account over a 2 year period of consistent wins, and his spread betting ‘account manager’ suggested they did not hedge against this guy, but his suggestion was rejected. The conclusion was that the guy eventually lost the lot over a very condensed period of time, hence the reason this particular spread betting company would never base a hedging strategy on the actions of any one of its clients.

I read an article a while ago which concluded that most spread betters end up breakeven or net losers and that only some 2% will make serious money.

The spread betting firms make money on the spread but will also be able to contra opposite trades made at the same time. I’d guess that they wouldn’t hedge index trades if more than 80% of people lose, why would they?

The difficult thing to get your head around is that while everyone thinks they are trading the market they are in fact trading their belief about the market. Beliefs get stronger with confirmation but take some time to change which is why sooner or later the market changes and everyone who had made a killing then proceeds to lose it.

There are other psychological reasons why we lose and the normal method is our sub-conscious takes over our trading & loses for us! When we look back at it we can’t understand why we ever traded like that and decide never to do it again….until it happens again!

Trading is about learning about ourselves and what makes us act in certain ways and then overcoming them – it’s not easy, some may say impossible, but we all want to be the 2% that make it.

“A friend of mine got addicted to spread betting on the FTSE 100 in 2008 which resulted in it ruining his life. He would get up in the middle of the night to check his positions, leave his young sons in the bath while he had to look at his pc screen, Basically neglected his family because he could not bear to be away from his computer. It wasn`t untill he came back from work to find his wife and children had left that he realised he had a problem. Luckily he talked her into coming back and has not touched the market since. He actually made about £150 000 at it which he bought a house with so it is not just the people who lose money at it who end up getting broken.”