Stock market statistics

The trading landscape has certainly evolved over the years. With the number of electronic trading platforms, trading apps, courses, and service providers growing at an exponential rate, anyone can now start trading and investing more easily than ever before. Just in 2019, global stock markets gained $17 trillion in value, indicating clear opportunities for success.

But even though there’s never been an easier time to be a trader than now, why are people losing more money and blowing up their stock trading accounts faster than ever before?

It all comes down to having the right knowledge to get started the right way, to see through the trading scams and to make trading decisions that are actually profitable. So while it has never been easier to START trading, it is as challenging as ever to START TRADING PROFITABLY.

Here are 12 stock market statistics that will change the way you trade in 2020 and beyond, and help you achieve your trading goals.

Enlightening Stock Market Statistics for 2020

1. In 2018 alone, the United Kingdom Financial Conduct Authority (FCA) reported that over £197 million worth of assets were lost due to scams.

Now that trading can be done online and at your convenience, it’s important to adopt the best cybersecurity practices. 54% of individuals who have checked the UK FCA warning list have been contacted by scammers and this statistic alone shows you how easy it is for them to reach you. Fraudsters can easily reach you via phone, email, or social media, so it’s important to stay vigilant of suspicious behavior.

Fraudsters are using more and more inventive ways to separate you from your trading capital. The common theme that almost all fraudsters have in common is they pray on one of the following drivers:

  • Doing the hard work for you
  • Using their broker who is the ‘best up and coming broker on the market’
  • Achieving huge returns to help you get rich quickly with very little effort
  • Using unregulated and inefficient markets like binary options and forex
  • Automated trading bots that make huge returns in backtesting

The issue is that all of these are simply ploys to convince you to give them your money or your credit card details (or both) so they can take your money.

2. Victims of fraud lost an average of £14,600 of investments in 2018-2019.

Fraudsters often make use of paid advertisements to promote their online trading platforms as well as direct contact through social platforms like Facebook, Whatsapp, LinkedIn and others. With the promise of getting rich quick, traders are led to believe that their investments are growing at an exponential rate when in fact the money has or will shortly disappear without a trace. 

Before you start making deals on a trading platform, make a check-list to ensure its authenticity. A well-designed website or engaging social media posts aren’t direct indications of its credibility so always be wary. Reading reviews from past clients will give you an idea of their service and making sure that they’re recognized by all the relevant regulators should help you find a reliable partner.

Traders should NEVER deposit money with a broker that is not regulated in a major developed market. Unknown brokers in developing or emerging market countries have a huge fraud risk and should be avoided.

A common ploy from fraudulent brokers is to encourage a small initial deposit to get you in the door, often with additional incentive from deposit bonuses to encourage you to deposit just a little bit more. Fraudulent brokers will often contact you repeatedly after the account is opened to encourage you to deposit more so that you can trade bigger size and make even more money.

Fraudulent brokers, particularly in the Forex and Binary options space, charge above market commissions and have wide bid / ask spreads. They essentially steal your money by teaching you bad trading habits like using high leverage and trading many times a day (typically using their signal service or trading robots) so they can take larger chunks of your account in the form of commissions and spread more quickly.

3. More than 3000 hedge funds have shut down since 2015.

Financial experts estimate that more than 3000 hedge funds have failed since 2015. But around March 2018, the total number of assets managed under the hedge fund industry rose to an all-time high of $3.22 trillion

However, more and more losses continued to occur during the latter parts of the year. Investing in a hedge fund can be a profitable venture, but even the so-called professionals lose money. 

Hedge Funds and Mutual Funds use their massive marketing budgets to convince you that trading and investing are too difficult and should be left to the professionals. This self-serving argument generates huge fees at zero risk for them… but a huge risk for you.

The typical hedge fund charges 2% of assets under management as the admin fee, and 20% of profits. If they are able to generate a 20% average return before fees on their accounts (most fall far short of this goal), then they will make 2% on the admin fee and 4% on the incentive fee – a total return for them of 6% with zero risk. 

So a hedge fund manager makes 6% on your money while taking zero risk. This 6% is 30% of the profits… so the hedge fund manager takes 0% of the risk and gets 30% of the profits while the investor takes 100% of the risk and makes 70% of the profits. 

Not a fair trade!

Investment managers do not assume any of the risk, so their behavior and investment decisions may not be as careful or prudent as they should be. This is supported by the frequency of hedge fund blow-ups we are seeing in the market!

4. 50% of hedge funds shut down because of operational failures.

Dubbed as one of the riskiest asset classes to invest in, many hedge funds naturally enjoy a good amount of returns. However, half of hedge funds fail because of poorly managed operational costs and too much risk exposure. If you do decide to try your luck with a hedge fund, make sure that the firm you choose to work with is upfront about risks and conflicts of interest.

5. The average success rate of a day trader only lies at 4.5%.

While day trading may be a common practice for liquid markets such as Forex (Foreign Exchange), statistics show that the average success rate of a day trader only lies between 3.5 – 4.5%.  Your profit can be influenced by a host of factors but ultimately, if you don’t regularly outperform over 95% of other day traders, you’ll be struggling to make a profit… let along make a living!

The reality is, the financial markets are one of the most competitive environments on earth. Retail traders who walk into the markets hoping to make a quick profit day trading will quickly be separated from their money.

Traders who want to profit must play a game they can win. On the spectrum from high-frequency trading at the short-term end to long-term buy and hold at the other extreme, the greatest competition lies at the ultra short term-end. Retail traders simply can’t compete with the hedge funds, high frequency trading firms and professional day traders.

The easy way to get around this problem is to extend your time horizon and trade slightly longer term. You don’t need to hold for months, but holding trades intraday for just a few minutes is a very hard game to win. The cost of intraday trading may seem low, but you must remember to compare the cost of commissions and slippage with the average profit per trade you make.

If you pay 0.25% slippage and commission and your average profit per trade is only 0.5% when day trading then you will really struggle to make good returns. Contrast this with a position trader who holds trades for 1-2 weeks with an average profit per trade of 5% but who trades much less frequently.

The day trader will make his broker rich while he/she goes slowly broke. But the position trader has a fighting chance of building some real wealth!

6. Determined traders that make use of a long-term strategy have a 20% chance of being successful.

A 20% success rate may not sound much, but when compared to a short-term strategy such as day trading, your chances are over 4x higher. Most traders get impatient and quit within the first few months of their venture.  Just like any other investment, you’ll need to realize that generating decent returns will take a lot of time and effort. If you don’t acquire success immediately, staying committed to a long-term strategy should help you overcome mental barriers.

Trading is a game of edges – Most retail traders who come into the market don’t have an edge, and so they quickly lose all of their money. Trading longer term as this statistic indicates improves the edge you have in the market.

If you are to survive and make money trading in the long run you need to maximize your trading edge. This means lengthening your time horizon as well as adopting a trading strategy that has a quantifiable edge. Some guidelines to help ensure you have a profitable edge include:

  • Trade only in the direction of the long term trend
  • Allow winning trades to run and grow bigger so your winners are bigger than your losers
  • Use a stop loss or other exit rule that keeps your losing trades small
  • Trade with a trading system to remove emotion, subjectivity, and mistakes from your trading
  • Backtest your trading system to validate that it has a profitable edge over the last 20+ years to give you the confidence to follow the system

7. 69% of investors who use trading applications feel that they have an advantage over traders who don’t.  

Mobile applications give people more convenience when managing bank accounts, paying monthly bills, and conducting all sorts of cashless transactions. But when it comes to matters related to trading, you shouldn’t fall to the idea that using applications will give you a competitive advantage.

Especially if you’re using apps that are programmed to copy the behavior of other traders, it’s easy to become complacent and let others handle your decisions. At the end of the day, it’s always a better idea to develop your competency as a trader and take complete control over your investments. After all, trading is a skill that is developed through trial and error.

No amount of slick marketing or app development can replace a profitable trading system, backtesting to validate your edge, risk management and position sizing rules to keep you safe and the confidence to follow your rules even while you are in drawdown.

The sad reality is that most of the apps and services are unnecessary and will not help you trade profitably. What you really need is a stock trading system that fits your personality, objectives and lifestyle and the confidence to follow that trading system consistently.

8. Around 70% of trading volume in the US was generated through Algorithmic Trading Systems.

Algorithmic trading has gained global traction. Aside from the United States, it’s also responsible for 40% of the overall trading volume of the emerging Indian economy. Now that most investors and governing agencies are leaning towards high-frequency trading, trends suggest that the popularity of Algo-Trading will continue to rise. 

But even though robot advisors have the potential to dominate the industry, it’s important to note that not all bots are programmed the same. Just like humans, some bots are cautious while some may be more adventurous. This is where the dangers of Algo-Trading start to manifest themselves

Just because more and more of the trading volume is algorithmic, does not mean you as a retail trader should go and purchase an Algo / Bot / EA or auto trading copy service. Most of these will lose you money – the real smart money invests millions of dollars in their trading algorithms. An expert advisor from a website offshore for $297 is not going to make anyone money apart from the developer.

You will find far more success starting with a trading system that is not automated… prove to yourself that you can make money and then automate later.  

9. Algorithmic Trading Systems are Responsible for 75% of Global Trading Volume.

More than 80% of the stock market is now automated. Since automation can bring a large number of benefits to sectors such as banking and trade, artificial intelligence will continue to assert its dominance with matters related to finance. With its supercomputing capabilities, both investors and advisors are starting to integrate bots into their trading strategies and decision making.

However, it’s important to note that the algorithms used by these AI bots automatically adjust to market trends. Even if machine learning develops over the years, a sudden change could see your investment head towards a dangerous direction. To make sure that Algo-Trading is secure, market regulators will need to take precautionary measures and users will need to take certain matters into their own hands. 

10. Over 70% of Binary Options trading accounts lose money.

The vast majority of binary options accounts lose money. Few binary options traders enjoy success –one in four according to I must admit this is higher than I personally expected, because in many years of coaching traders, I have NEVER come across a profitable binary options traders. The only Binary Options traders I have spoken to have lost huge amounts of money! Even though this may seem like a lucrative investment, it’s not the ideal choice for investors who are looking for stable returns. If your risk tolerance/appetite is high, be wary of your decisions because binary options either provide a binary outcome – a fixed profit or zero. It is very hard to manage your risk properly when with each trade you can walk away with zero if you are wrong!

11. The Global Forex Trading Market is 2.5x larger than the Globe’s GDP

With over $5.3 trillion worth of assets traded daily, Foreign Exchange is the biggest financial market in the world. The New York Stock Exchange (the largest stock exchange in the world) has a market cap of $22.9 trillion yet trading volume in Forex is estimated to be 53 times higher. Since it’s a highly liquid market with a high number of buyers and sellers, it’s no surprise that the Forex industry is always bustling with activity.

The reality is that this statistic actually means NOTHING about the trader’s ability to profit. I get really annoyed every time I see this statistic bandied around in the marketing material of Forex brokers. “Trade the world’s most liquid market”… if you are a retail trader this means absolutely nothing because the vast majority of the Forex market is made up of huge inter-bank trades. 

To profit you need enough liquidity to get your trades executed – The stock market gives you that… $5.3T daily is certainly more than enough… but more than liquidity you need an edge. Trading a market just because it is liquid is crazy. Before jumping into any market ask yourself first “Do I have a profitable, consistent, and stable edge in this market?”.

From my experience, it is far easier to get a stable and consistent edge in the stock market than it is in Forex.

12. The United States constitutes 40% of the globe’s market cap

It’s the first time since 2005 that the global market cap of the United States has reached this level. Due to the strengthening of the dollar, new acquisitions in American equities, and the decline in international equity markets, the United States has acquired 40% of the world’s market cap.

If you want access to the most relevant stock trading opportunities, you should partner with a broker that’s based in the US or another regulated market such as the UK, Canada, or Australia.

There are absolutely opportunities globally, but the US market provides some unique advantages and disadvantages. Firstly most of the largest, most recognizable company names are listed in the US, brokerage is very competitive, margin rates are low, and it is very liquid. The downside is that it is dominated by algorithmic trading, high-frequency trading, and huge numbers of funds. It can be easier for a trader to make higher returns in other markets.

Trade US stocks by all means (I do), but it would be myopic to think that you should ONLY trade US stocks. There are great diversification opportunities elsewhere and you can dramatically enhance your returns by diversifying internationally. That is why I also trade stocks in Australia and Hong Kong… diversification is a powerful force that you should harness in your trading.

Stay Ahead of the Curve

The Stock Market is ever-evolving and it truly pays to know what direction it’s heading, as well as where and how you can gain a sustainable edge for your trading. Even though its nature is relatively volatile, a systematic approach to your trading, effective risk management, and broad diversification will allow you to keep taking steps in the right direction… provided you don’t fall victim to the scams and frauds that questionable practices that the industry uses to try to extract money from your trading account! 

With the statistics mentioned above, you’ll need to put greater emphasis on personal responsibility. Testing everything for yourself, using a long-term strategy which you execute using a backtested stock trading system, and putting a greater emphasis on your longevity but using longer-term trading systems, careful risk management, and broad diversification will ensure your stock trading success in 2020 and beyond.

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