Secondary research

Author: Patrick Jordan for Gain Capital, May 2016

Literature review: Market reports UK

Investment trends and other research give us a thorough quantitative overview of the UK market

Report Insights

Investment Trends, UK Leveraged Trading Report: Financial Spread Betting Industry Trends, November 2015 (Vol 1)

Lack of success biggest barrier to trading

Ease of use and clean interface key

Quality overtaking cost as main driver of switching

Investment Trends, UK Leveraged Trading Report: FSB Competitor Analysis, November 2015 (Vol 2)

Ease of use is the number one driver of FSB provider selection

Charting and other platform features next

Spreads and customer service also important

Investment Trends, UK Leveraged Trading Report: CFD Industry Trends, November 2015 (Vol 3)

Ease of platform use the number one driver of CFD platform selection

Lack of knowledge major barrier to trading for new traders

Lack of time for more experienced

Investment Trends, UK Leveraged Trading Report: CFD Competitor Analysis, November 2015 (Vol 4)

City Index is not highly rated for platform usability compared with competitors

Nor is it rated highly for platform features, research tools or charting

CI users main suggestion for improvement is charting (apart from spreads)

Investment Trends, UK Leveraged Trading Report: FX Industry Trends, November 2015 (Vol 5)

Lack of success knowledge and time are biggest barriers to trading

Ease of use is biggest driver of provider selection

Ease of account opening second

Investment Trends, UK Leveraged Trading Report: FX Competitor Analysis, November 2015 (Vol 6)

Many CI customers would value improved autotrading

Many users unhappy with CI’s speed of execution

Many CI clients use charts from other providers (one third user Bloomberg)

Foolproof, City Index, Trading Platform User Research, June 2014

Placing a trade online is difficult for those without experience

People prefer a layout that reflects their style of trading

Trading style and user journeys do not clearly correlate with trading experience

City Index (Larry Brangwyn), Online User Personas: UK Client Segmentation, January 31, 2014

Making money is all traders’ primary focus

Early losses often lead to dormancy

Lack of time is major barrier to trading


Making money is the primary focus of all traders and losing it the biggest barrier to trading

Ease of use is the main driver of platform selection

Similar research has been done in the USA

Report Insights

Investment Trends, United States Foreign Exchange Report, June 2015

FX traders are becoming more price sensitive

Numbers are down despite volatility

Many have mastered the basics: want more help on analysis strategies and risk management

Rokkan, Digital Strategy, Feb 19, 2014

Trading provision is a commoditized market, little competitor differentiation

Need solid functional offer: low spreads, definite fills, quick trades

Need emotional offer: help avoid losing money, peace of mind, fairness

Forrester Research, Segmentation: Quantitative Research Findings, June 2009

Potential profit main reason for trading

Most traders young, male, college educated, less risk adverse than average

Average customer spends 16 hours/week on trading activities

Rokkan, Gain Capital. US Consumer Research Findings, April 30, 2014

Good returns important for all

Status, freedom and control widespread drivers

Perceived risk and effort are barriers for perspective traders


Traders want to make as much money as possible and to keep their costs down

Many, especially young men, enjoy the image and excitement that goes with trading

Literature review: Market reports APAC

We also looked at APAC

Report Insights

GfK for Rokkan, Report for Forex Market Research in China, April 18, 2014

Many find it emotionally difficult to stick to their trading systems

Don’t mind being treated like novices

Platform stability and speed are main reasons for switching

Investment Trends, Singapore CFD and FX Report, August 2015

Ease of use number 1 selection driver for high value clients

Losing money and lacking time are main reasons for stopping trading

Customer service is number 1 priority for switchers

Investment Trends, Australia CFD Report: Competitor Analysis, June 2015

Ease of use by far the biggest driver of provider selection

Number of new traders increasing

Lack of time a barrier to trading for many

Investment Trends, Australia CFD Report: Industry Trends, June 2015

Lack of time, knowledge and funds were biggest barriers to trading

Reducing commissions and spreads would increase trading volume

Ability to manage risk would also increase volume significantly


People would trade more if they had more time and lost less

Ease of use is the main driver of provider selection

Internal reports

We have been developing our goals and strategies for achieving them

Report Insights

Introduction to metrics used in account valuation, 2014

Asian accounts tend to have the highest lifetime vales (LTVs) except Japan which has the lowest

Mean much greater than median (skewed by ‘extreme’ traders)

Most accounts have stopped trading after two years

Platforms: In the Beginning (Joel Ippoliti), 2016

Business objective of the platform is to increase trade frequency, volume and quality (value to GC)

User objective: to make money

May need different offers for experienced and novice traders

Trading Platforms: The Beginnings of a Strategy (Joel Ippoliti), 2016

Need better understanding of what products appeal to which users and why

Beginners want ease of use and safeguards

Social trading is attracting users who haven’t traded before

City Index Marketing Campaign Q1/Q2 2016

Aiming mainly at switchers

Position: We are making a unique commitment to help you be successful

Based on alerts, analysis tools and automated trading


We aim to increase both the volume and value of trades that are placed by our clients

We want to attract both new and experienced traders and expect that they will want different things

Literature review: Trading behavior, industry articles

Few traders are successful, we need to understand why

Article Insights

Online Trading Academy, Finding Your Style of Trading, April 22, 2014

Four styles of trading (time wise)

Scalping (minutes or seconds); Day Trading (hours to a couple of days); Swing Trading (up to 2 weeks (usually 4-6 days); Position Trading (from months to years)

Paul Wallace, Eight Trading Rules I Wish I’d Known when I Started, August 1, 2014

Risk management first, speculation second

Get a mentor

Everyone pays for their trading education (formally or in losses)

Paul Wallace The Three Keys to Longer Lasting Trader Success

Process: have a logical trading system

Discipline: stick to it in a diligent manner

Self-awareness: monitor your emotions, know when not to trade

Investopedia, Behavioural Finance

People are not rational wealth maximizers: often behave irrationally

Confirmation bias: More receptive to news that confirms original opinions

Hindsight bias: Things can look obvious in retrospect, leads to overconfidence


People do not behave rationally when trading and this is a major reason why so few are successful

It is essential to be disciplined and manage risk

Literature review: Trading behavior, scientific articles

As well as industry research, there have been scientific studies of trading behavior

Research Commonalities across segments

MIT Media Lab, Decoding Social Influence and the Wisdom of the Crowd in Financial Trading Network, 2012

Social trading provides better opportunities for profit than individual trading

People make good decisions about who to follow when they can see others’ trades

Social effects can over-ride rationality, especially in taking risks

Kahneman, Thinking Fast and Slow, Penguin, 2012

Personality characteristics that can be very helpful most of the time can lead to poor financial decisions

Loss aversion: losing $100 gives twice as much pain as gaining $100 brings in happiness

Optimism bias: we tend to believe that we have more control than we really do

University of Cambridge, Behavioural Finance

Affect: may overestimate how well stocks of companies we like will do

Availability: we tend to use readily available information rather than seeking out more

Similarity: tend to see patterns with paste events even if not there


The ‘wisdom of crowds’ offered by social trading may mitigate individual irrationality to some degree, but it can encourage risky behavior

Being successful involves controlling emotions and overcoming personality traits

Literature review: Most common trader mistakes

We collated the view of leading experts to understand why traders lose money

No reasonable trading plan

Not having a trading plan

Having a trading plan that is too difficult

Having a ‘mechanical’ trading plan

Trading ‘noise’

Not sticking to a trading plan

Not accepting a loss

‘Gut’ takes over

Spot an opportunity ‘on the fly’

Getting greedy

Following the crowd

Seeing a trend develop and jumping on thoughtlessly

Following the advice of an ‘expert’ without being able to evaluate it

Running losses and cutting profits

Holding losing positions in the hope that they turn

Not wanting to admit that were wrong

Quitting too soon while ahead

Averaging losses

Not using stops and limits adequately

No stops and limits set

Stops or limits set too low or high

Stop set to close, gets triggered by noise

Stops and limits set in a way that gives a poor reward to risk ratio

Poor money management

Accounts not properly funded

Too much risked on a particular trade

Too many open positions

Failure to learn

Not reviewing and analysing trades

Not taking responsibility for losses

Not being focused enough in terms of markets and asset classes

Trading in the wrong frame of mind

Become desperate to get money back after losing trades

Become gung-ho after winning trades

Lack of preparation

No trading training or education

No research about individual trades

Not knowing how to short (only going long)

Lack of psychological discipline

Underestimating difficulty of trading

Treating it as a hobby

Overly high expectations

Poor time management

Lack of emotional control



If we can help people avoid these mistakes they will have a better user experience

Literature review: Most common autotrading mistakes

We collated the view of leading experts to understand why traders lose money when autotrading

Wrong mindset

Expecting big, risk free returns

Thinking that little or no effort is required

Assuming that they do not have to take any responsibility for their trades

Focusing on gains not risk management


Dishonest claims on forums

Advertising huge risk free gains for no effort

Signals that look good but use very high risk strategies

Technology failures

Outages, connectivity and speed issues

Software crashes

No back up plan for these emergencies

Superficial analysis

Only checking headline PnL (not open positions)

Not spotting v. high risk strategies (e.g. Martingale)

Lack of on-going evaluation

Many EAs performances degrade over time

Social trading gurus performance can deteriorate

Psychological pressure

Panicking because of volitility, big drawdowns or a run of losses

Interfereing with signal as a result

Poor risk management

Not understanding risk/reward ratios

Not having risk-balanced portfolios

Over-reliance on leaderboads (high risk stategies tend to lead)

Poor money management

Placing large stake on volatile signal

Mirroring large trades by gurus

Danger of being stopped out

Lack of preparation

No trading training or education

No research about individual trades

Not knowing how to short (only going long)

Not matching signal to ambition

Choosing a signal that doesn’t give returns over the desired timescale

Choosing a signal that is too stressful or too boring for the user’s taste


Autotrading can solve some of the problems people have when trading but can introduce other ones

Literature review: Trading psychology

Trading confronts people with sustained highly adverse psychological conditions

Not accepting risk

Not all trades will be winning ones

Success accrues over series of trades


Need to spend time developing plan

Practice on a demo

Test approaches and keep records of trades

‘Non-mechanical’ mindset

Develop a strategy and stick to it rigidly

Don’t try and trade intuatively unless very competent

Rule aversion

Many people don’t like setting rules

Sticking dilgently to strict rules essential to successful tradng


Overestimating ability leads to non-mechanical trading

Overconfidence that trade will win leads to running losses


Expecting an item of news to have a greater effect than it does

Trading too heavily on it as a result

Loss aversion

Losses hurt more than equivalent wins

Leads to people not closing losing trades and taking gains too soon


Refusing to accept that trade isn’t going as predicted

Stayiing in a trade too long and running losses


Trade affects self-esteem, become emotional

Can lead to stubborness and overconfidence


Not giving sufficient time to trading

Getting distracted

Lack of safety focus

Insuffficient attention to risk management

Unrealistically high expectations of gain

Risking too much money per trade

Overweighting success

When reviewing trades give too much weight to successful ones

Don’t learn from mistakes


Psychology accounts for at least 90% of the likelihood of trading success or failure

Media review

These documentaries followed traders of various levels of experience

BBC, Million Dollar Traders, ‘Make me a Trader’ Jan. 2009 (episode 1 of 3)

Key insights:

  • Having the right psychology and mindset is essential to trading effectively
  • Risk management is essential and you should always know your exposure
  • “Naked punting is for idiots”

BBC, Million Dollar Traders, 'Profit and loss' Jan. 2009 (episode 2 of 3)

Key insights:

  • Procrastination is a problem for many traders
  • “If you’re not invested you can’t make money”
  • People can know how to trade but lack the mental toughness

BBC, Million Dollar Traders, ‘Traders’ Jan. 2009 (episode 3 of 3)

Key insights:

  • Need to move onto the next investment and clear your mind of others
  • Trading brings horrendous highs and lows of emotions
  • Many traders go through the motions of analysis but trade on their gut anyway

BBC, Traders: Millions by the Minute September 2014 (episode 1 of 2)

Key insights:

  • If trading news you have to be an expert in reading between the lines
  • Psychological and emotional skills differentiate good and bad traders
  • People can freeze when trading real money having done well on demo

BBC, Traders: Millions by the Minute September 2014 (episode 2 of 2)

Key insights:

  • Only 10% of home traders make consistent profits
  • Most can learn the basic mechanics of trading within a few weeks
  • “Novice traders think about how much money they can make, professional traders think about how much money they can lose”

Bloomberg, The Player: Secrets of a Las Vegas Whale February 2014

Key insights:

  • Personalized entertainment and perks for high value gamblers (whales)
  • Desperate to get whales into casino, go further and further to ‘dazzle’
  • Negotiate special deals/rates with whales

Literature review: Emotions and trading

Emotions have four components, a qualitative descriptor and three quantitative dimensions. People are likely to trade better the more low-key or neutral their emotions are

F-PAD model of emotion


A word that describes the emotion


How good the person feels


Level of energy associated with the emotion


Level of power that the person perceives they have

Trading and emotion


Associating highly positive/negative emotions with winning/losing trades leads to poor judgement


High levels of activation can lead to risky behaviour; low can lead to unwise trades based on boredom


Emotions with high or low levels of dominance can lead to over-optimism or pessimism

Examples of emotions. Each dimension is rated on a scale from -2 to + 2

Feeling Positivity Activation Dominance  





Danger zone













Safe zone













Danger zone

The more we can help ‘dial down’ users’ emotion, the more successful they are likely to be