Those who invest their money in stocks or cryptocurrencies could actually do little wrong in recent years. Because prices have risen sharply in the overall view and historical records have been set – be it when buying Bitcoin or trading stocks such as Tesla.


But many investors in the financial markets, especially younger and less experienced private investors, are not satisfied with the returns that can be achieved by simply holding securities, ETFs or cryptocurrencies. They expect significantly higher profits through trading.

Trading can be worthwhile

At first glance, the strategy sounds logical. Because when trading on exchanges like eToro, even small amounts can be inflated to big profits by trading with levers. A simple example shows why trading itself can be quite lucrative.

Anyone who invests 1,000 euros in Bitcoin today could already make a profit of 100 euros in a week, provided that the price rises by 10 percent during this time. Of course, the fees of the crypto exchanges must be deducted here, which are not very important with this comparatively small investment amount.

However, if you use the same amount for trading Bitcoin and, for example, use a leverage of 10x, a price increase of 10 percent will result in a profit of 1,000 euros and would have doubled your stake. At first glance, trading seems to be extremely lucrative.

Study shows frightening result

But why then, according to a study, more than 99 percent of all traders lose money in the long run and often end up making only one rich – namely the trading exchange. And why do investors who do not use trading, but only hold their assets, perform better in the long run? The most important reasons at a glance.

The alarming figure of more than 99 percent of losing traders comes from studies by the American financial economist Brad Barber. Together with his colleagues, he analyzed the trading behavior of several hundred thousand day traders in Taiwan, which the Neue Zürcher Zeitung presented.

The sobering result is that out of a total of 450,000 day traders used for the study, only about 4,000 will achieve stable and reliable returns in the long run. More than 99 percent of them lost money in the longer term.

Although, according to Barber, depending on the development in the financial markets, there are years in which almost 20 percent of the analyzed traders would make profits, but this is not the rule, but rather the exception.

How is this possible when trading with leverage can increase profits so much? The answer is that there are a variety of strategic mistakes that most traders, especially the inexperienced ones, make. So trading itself can work, the failure is due to personal mistakes.

Error 1: No preparation of trading

Probably the most common mistake of traders is that they have little idea of how trading can be profitable at all. The prospect of quick money tempts you to quickly register with a trading exchange and gamble money. It often takes very painful financial experiences for inexperienced traders to understand that they will not succeed if they do not learn trading from scratch.

Traders lack various building blocks for successful trading. Many have never engaged in technical analysis at all, which is the basis for understanding the behavior of the courses. In addition, many traders also do not know what functions there are within the trading exchange to at least limit possible losses.

Mistake 2: All-in trading with far too high sums

Another very popular mistake is to start trading with large amounts. Instead of initially approaching the matter on the basis of very small amounts, the total loss of which is economically painful, higher sums are used. Often the prospect of quick and high profits leads to this behavior.

Also, the possibility of using a trading demo account to practice trading with leverage with non-real amounts is either not known to many traders or they feel it is superfluous, since it is of course not possible to achieve real profits with a demo account.

Error 3: Trading too high levers

Very often, new traders also fail at much too high levers. You can be tempted to do this, because a high leverage, of course, promises much higher profits. Anyone who invests about 5.000 euros in Bitcoin with a leverage of 5x, can look forward to a price increase of 10 percent about a profit of 2.500 euros (5 x 10 percent), minus. of trading fees.

Of course, a leverage of 20x seems much more lucrative at first glance. For the same amount of investment, the profit would increase to 200 percent or 10,000 euros. Or why not 100x? Also, such levers are offered by most trading exchanges. In the example mentioned, this would be a profit of 50,000 euros (always before deduction of trading fees!).

Many traders neglect the fact that leverage naturally drives up losses. While in the mentioned example with a leverage of 5x the price would have to fall by 20 percent for a total loss, with a leverage of 100x already a price decline of one percent and the mentioned 5.000 euros are gone. Especially in volatile markets such as crypto currencies, a price decline of one percent can take place within one minute. So you can destroy an insane amount of money, an insane amount of money.

It is also often forgotten that a high leverage drives up the position size on the basis of which the trading exchanges measure their fees. So the fee is a lot higher with a 100x lever than with a 5x lever. And the fees should not be underestimated. They can significantly fall into profit, depending on the exchange.

Mistake 4: Acting with emotions

Successful traders are characterized by the fact that they can largely hide their feelings when trading and make their decisions only on the basis of fundamental data or technical analysis.

However, most traders are guided by their emotions. The loss of a larger amount of money thus often does not lead traders to take a little distance and critically question their strategy. No, you invest even higher amounts in the hope of making up for the loss by making a profit in the new trade. However, this strategy rarely works. If the basic attitude is not correct, losses are practically inevitable.

It is also extremely popular to “jump in” a market development instead of anticipating it. So many beginners like to trade into the green candles of rising prices. It is often forgotten that after a steep climb, an early correction is very likely. Conversely, the same applies. To open a short position in already strongly fallen prices usually goes wrong, since even a correction does not continue endlessly.

In the second part you will read tomorrow, with which strategy trading can still work.