The Stats Are In Educated Traders Beat Casual Punters By A Mile
By not over-trading, taking losses when a trade goes wrong, and banking profits on a consistent basis.
It’s no secret that traders with training do better than those without.
Online brokers worldwide have battled to improve the number of winning versus losing clients, but QuickTrade, which boasts more than 50 000 clients in SA, says the answer lies in ongoing training.
“Clients who have undergone some form of training in the financial markets do much better in the market than those with no training,” says Hardus van Pletsen, CEO of QuickTrade.
“Our online trading platform grew out of our stock market training courses. We were teaching people to analyse and understand the financial markets, but then realised we had to offer them a platform where they could put these teachings into practice, and that was how QuickTrade started in 2014.
“Understanding the intricacies of financial statements and market dynamics is one thing, but we learned through experience that education is an ongoing necessity to be successful in the markets.
“We assign an account manager to each client, and then have a trading support team that runs our online trading rooms where clients can log in each day to get analysis from market experts, and to share ideas and trading strategies. Those who attend these online trading room sessions are our most successful traders.”
It’s a sentiment echoed by other online brokers in SA.
In the absence of education, financial markets trading is akin to gambling, something Van Pletsen says he wants to eliminate.
“No one operating in this market wants their customers to lose,” he adds. “We are always analysing the performance of our clients and establishing ways and means to help them perform better.
“In our experience, clients that lose are the ones that violate their own trading strategies. They enter a trade in the expectation that it will go in a certain direction and when it doesn’t they do not exit the trade and accept the loss. They hang on, hoping it will reverse course, and this is usually the most fatal mistake.”
The converse of this is the trader who takes profits too early. Traders who take a position in the market with the expectation of riding a trend for several days or weeks may become jittery when there is a pullback in profits, and then decide to bank whatever small gains are on the table rather than calmly wait for the market trend to play out and bank a much bigger payday. Trading experts at QuickTrade are on hand to guide clients through the noise of markets and execute their strategies for maximum gain.
The QuickTrade trading rooms open twice a day: once in the morning for an analysis of the JSE trade, and again in the afternoon to discuss likely trends in the world markets. Clients are given access to the MetaTrader 5 trading platform, considered among the most advanced and simplest to use in the world.
The most favoured trading instruments are currency pairs such as the US dollar-euro and indices such as the Nasdaq and S&P 500.
A training mindset
QuickTrade has a teaching mindset, where the trader is guided and encouraged in developing a clear and definitive trading strategy. Personal account managers can assist those who feel left out in the cold after a trading strategy goes wrong. “Everything we do is aimed at turning the retail trader into a professional,” says Van Pletsen.
The company offers the trader two kinds of accounts – spread (where the broker makes money from the difference between the buy and sell price of a security) and commission (a flat commission fee) accounts. Traders can also choose leverage of between 100 and 500.
There is also no minimum amount required to start trading, so accounts can be opened and newcomers to the market can play around with a demo account before dipping their toes in the water with real money – even if it is just a few hundred rand.
QuickTrade has a Category 1 trading licence from the Financial Sector Conduct Authority (FSCA) and is currently applying for an over-the-counter derivatives provider (ODP) licence, which is required for the trading of a type of derivative product known as contracts for difference, or CFDs.
“I’m excited that we have a regulator. None of us want to play in a space where there no rules,” says Van Pletsen.
QuickTrade offers CFDs on a range of currency pairs, indices, commodities, JSE and US stocks such as Tesla, Microsoft, Apple and Amazon. CFDs allow the trader to take leveraged positions on the underlying instrument, but without ever owning it. For example, you can purchase a CFD on Apple stock which will track the stock price movements of the share, but without actually owning the stock. That means you never receive dividends or get the right to vote on company resolutions.
Online broking in CFDs has brought the financial markets much closer to millions of people around the world, but Van Pletsen admits the sector has some work to do to clean up some of its more dubious practices, which is why he is in favour of rigorous FSCA licensing.
To further build trust in the market, QuickTrade has brought some heavyweight directors onto its board, including non-executive chair Humphrey Borkum, who was formerly chair of the JSE and prior to that chair of Merrill Lynch South Africa. Also on the board as non-executive directors are former chief financial officer at Merrill Lynch South Africa Sanjay Chiboo, and Sophia Coetzee, former Sub-Saharan Africa head financial crime compliance and regulatory compliance at HSBC.
Winners and losers
The harsh reality of online broking is that most clients lose, something online brokers around the world are battling to correct. But there are some extraordinary success stories from those who win.
Van Pletsen relates the story of a young trader who opened an account on a Thursday, invested R2 000, and by the following day had turned it into a R400 000 profit by taking a leveraged position on a tech stock that shot through the roof.
“He withdrew his profits and we tried to reach him to get a success story from him, but we couldn’t reach him. We suspect he thinks we made a mistake because of the huge profits he made,” says Van Pletsen.
Another client took his trading account to R1.45 million in six weeks and then traded it all the way down to R13 000 in no time.
“This is one of the downfalls of not having a proper trading strategy in place. Traders see huge gains but don’t really understand the market, or how they managed to make so much money. They don’t put stop-losses in place and then see all their profits disappear. We’re much more proactive these days in making sure our clients put risk mitigation strategies in place so they get to keep the profits they have made,” adds Van Pletsen.
Original Moneyweb article: The stats are in: educated traders beat casual punters by a mile