ESMA Regulations Reveal: Where CFDs Traders Lose the Most
As ESMA forces brokers to display the percentage of their winning clients, the competition heats up
Transparency has been a key issue for foreign exchange and CFDs brokers in recent years. When it comes to EU-regulated brokers, the beginning of August was supposed to be the start of a new era. European brokers were forced to make some dramatic changes to their offerings, and some key aspects of the broker-client relationship are now out in the open.
While some traders are scratching their heads and contemplating how to get higher leverage, firms now have to disclose what percentage of their clients are losing money. In an extensive effort, the Finance Magnates Intelligence department has collected a set of data which provides valuable insight into the dealings of several brokerage companies.
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Every EU-regulated broker is now visibly displaying figures which the ESMA considers valuable to retail investors. The primary goal of this new regulation was to put a halt on misleading advertising, but the supranational regulator’s decision to put a spotlight on client losses also provides traders and brokers themselves with precious information.
Not only can brokers compete to attract the most-successful traders, they can also smartly use their percentage of winning clients as a reputational edge.
Win-Loss Ratios
The Finance Magnates Intelligence Department included a total of 30 brokers in its sample. While the charts are certainly comprehensive, we must stress that these figures are in no way representative of the quality of the service of the mentioned brokers.
Trading is a zero sum game and as such, there will always be more losers than winners. The goal of the new regulation is to better inform retail investors that the winners are in the minority. The days when regulated brokers were able to advertise aggressively are long gone.
I remember the years when a crystal ball banner with a message “guess where the EUR/USD is going” would appear. An enticing message that you can make money by trading forex was designed to appeal to the most primal instincts of competitive humans. After all, competition is in our very nature and making money by beating our peers in a game is one of the most satisfying feelings one can experience.
With this long disclaimer, let’s move on to the data. Below you will find a complete list of the biggest brokerages. They are sorted by the number of most winning clients, which are represented as a percentage of the total clients of the brokerage.
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Social Trading Actually Works
If there has been any doubt that social trading or copy trading works, the data provided by brokerage companies shows that there are some merits to it. Two of the top 5 brokers which are home to the largest number of winning clients offer a social or copy trading product.
A whopping 35 percent of clients of eToro have made money. Darwinex is the other firm on this list that offers clients to follow trade leaders. This has proven to be good for its customers, with 31 percent them being in the black.
Other brokers in the top 5 are also notable: AETOS, GBE Brokers, and XM Markets. Looking at the biggest brokerages, Saxo Bank comes close to the 30 percentile with about 29 percent of its clients making money.
The Red Line is Above 80%
We certainly don’t want to single out any brokers for not having enough profitable clients. What we can say is that 70 to 80 percent losing clients appears to be the norm. There is little brokerage companies can do to stop their clients from losing money. What they can do is make sure that their clients have the necessary tools to make informed decisions.
The chart below shows that the profile of brokerages which house mostly losing clients is rather broad. Only Vestle (formerly iFOREX), HYCM, and EasyMarkets have an unusually high percentage of customers which are in the red.
Competing for Smarter Clients
If any trend emerges from this data forced upon us by the ESMA, it is that brokers should race to build up a client base which is better informed. The number of additional tools and tools that actually work and provide insight will be crucial. What will be even more crucial is education: brokers with the least educated clients will always house more losing clients. If they want to use their win/loss ratio as a clever marketing tool, they should commit more resources to that.
With the new leverage rules in force in tandem with the win/loss percentage disclosure, brokers who are in this business for the long haul should focus on bringing in clients that stay with them for long. The days of churn and burn are behind us, and so are the days of reckless advertising. It is time to adapt and focus on a tactic that will bring long-term benefits to clients and brokers alike.
they moved 🙂 https://twitter.com/bit_reporter/status/1029333268087418882
XM have obviously frigged there figures – says 74.55 here - https://www.xm.com/
XM is a clear market making scam
Thank you ESMA! This is exactly why the new ESMA regulations are destroying the companies who play the game by the rules. This ranking sent a shock wave today through the FX community and it gave reasons to some very bad people to open bottles of champagne. On the other hand, the people who work in the industry for companies who respect the law realize that from now on, the scammers are at an advantage. Some companies who are at the middle, and others near the bottom of that list, companies that always respected the rules, never pushed anybody to… Read more »
So sad to see “reputable brokers” whining about their business. I know FXCM since the start of their business when they were a REFCO offshoot.
Cut the crap, because you have absolutely NO CLUE how these “reputable brokers” started their business! They started it by fraud, fraud and one more time: fraud!
Freezing trading stations, Sunday night stop loss fishing, spread widening after macro figures, execution speed brakes, data overload techniques and many more “scams” were on the menu!
The interest of the single investor were last in line at a so-called “FX Brokerage”!
Stop whining!
Speak for yourself… Not everybody is the same.
This was the same business modelk as futures brokers in the 1980s anbd 1990s – the knew your stops and hunted them down – for retail it is a mugs game but an uindustry was built aroiund this simple game, and made many individuals rich = what other financail institution / industry can take 90% + of client money as a service
Did you mean to write “lower” or “higher”? I know you’ve got a bit of irony going on but if you’re really disappointed P500 is the lowest ranking brokerage of its size, you’re misguided.
is this overall since forever? or from accounts registered this year? or trading this month?
generally: can we have some clarity on the criteria because every little detail changes the picture drastically
Good point indeed.
A timeframe is necessary to make sense of this data.
Greetings George, the data encompasses the past 12 monts before the implementation of the ESMA regulatory framework on the 1st of August.
So how do we get to the 95% of retail traders losing in the long run? In fact, the real number is more like 99% being losers. Here is why: by the next reporting period, many of the losers will have pulled out of the market, yet new players come in. The 75% losing percentage will remain the same, which will affect the 25% of winners in the previous count as well… so 25*0.25 = 6.25% winners on the next count. Next count after that, same logic: 6.25*0.25= 1.56% winners, etc. Bottom line: only a very small minority really wins… Read more »
Look’s like valid point
It shows what kind of clients companies has. More loses – more bad client quality
brokers should race to build up a client base which is better informed. The number of additional tools and tools that actually work and provide insight will be crucial => so what are these tools, where are they and why isnt some brokers already using them – this also suggest why be a STP broker when retaiul losses money – creates capital risk for no advantage – and of the 80% who lose, ~10% of these 80% would make 80% of the earnings – so the largest losers are in the minority but even the brokers who are in iot… Read more »
I don’t think you know what zero sum game means!
You didnt include Oanda Europe (77%).
I found not all brokers are equal. after trying many I ended up with easy markets because of their deal cancellation allows a return of money on losing trades. as a short term trader it gives me safety and to cancel aqny loss. people should use this to their benefit.
I wondered about this tool – most brokers make about $10 – $20 per Lot if lucky given zeroish spreads – so if the broker can create a tool that gives them more than say $30 per Lot theya re ahead – so they make more per Lot with this marketing gimmick that actually B Book risk management
This is misleading and I am not surprised. How are the %age numbers obtained?
How many of these accounts are opened with unique entities/individuals vs a simple total of all accounts?
How active do these accounts have to be?
Is there a minimum volume to qualify as being an active client? How is that calculated?
Hi Jon,
the numbers represent active clients for a period of 12 months, which means its stats from end July of 2017 until about pre-ESMA times. There is no specific criteria as to how active an account has to be.
Best,
Victor
I know at least one brokerage who forged this data to look better than their direct competition from the main markets that they fight for. The Regulators need to verify asap this data that was reported and the means of calculating it. (I will give you a hint: look at the brokers that updated this info on their websites last; so basically ask them for reports regarding the website/dislaimers update and start digging from there) Also, the ways in which brokers accepted professional clients, as there are cases of unfair competition there as well.
You also must remember – this is simply the absolute number of retail that lost $ and who made $ = 20 made $ : 80 lost $ for every 100 – it would be interesting to see the aggregate $ amount for each group [ the winnsers and the losers] – profiling of retail traders would suggest, and a previous article mentioned this, that ~20% of the client base [of the losers] create 100% of the revenue to a broker = so for every 100 traders around 10 – 15 make the broker all their earnings – so profiling… Read more »
As to the statment that Copy trading works – ans still 70% of traders lose money – or 10% make money than if they traded themselves
– what woud be interesting is how many used technical analysis in all its many guises – how many used fundamental, sentiment and automated
What would be interesting and a good indicator for socail trading is that 30% made money but had a higher multiple of total aggregated winnings
1 more comment – I wonder of the winners, how many were automated EA trading systems – as they either make money or wont be trading [turned on] = so in a sense always winners
ETORO has good management and a strategy they religiously follow over the last years. they are not in just for the quick buck
right Mike, that i why ONLY 65% are losing… what a cynical joke
does anyone know Naga Markets? I saw in their website that 86.51% of retail investor accounts lose money when trading CFDs .
The sad truth is that: as long as a broker is the market maker, its retail clients will ALWAYS lose money because the broker will always take the opposite side of your trades. Therefore, whenever you win, the broker loses. Traders can only stand a chance is they traded through pure ECNs/STPs. Most brokers adopt the MM model because that is where most of their profitability and sustenance come from.