According to new data compiled by high-growth global trading platform Capital.com, clients who trade for longer periods of time across a wide range of asset classes are more profitable than those who close-out positions immediately or trade just one specific market. 

According to Capital.com’s analysis of 100,000 active traders, globally, between May 2022 and April 2023, clients who traded 5 different asset classes typically closed 60% of their positions with a profit. By comparison, clients who traded 1 asset class closed 48% of their positions with a profit , on average. 

Despite the higher profitability levels of a diversified trading strategy, just 15% of Capital.com clients trade across 5 different asset classes. The vast majority of traders (65%) trade between 2 to 4 different asset classes, while 20% of clients trade just one asset class. 

Daniela Hathorn, Senior Market Analyst at Capital.com, said: 

“The challenging market is hitting everyone at present, but one way to try and slow the tide is by diversifying your investments. It’s better to spread the risk across different asset classes, companies and investments than to pursue profits from one single area that could quickly go south. Our data clearly demonstrates how diversification can not only be an effective risk management strategy but also a profitable trading strategy during periods of market uncertainty.” 

Capital.com’s data also revealed a strong correlation between the length of time traders keep a position open and profitability.  An average of 44% of positions were closed with profits when traders held them for between 30 minutes to 6 hours. These traders also used stop-losses more frequently.

By contrast, clients who held positions for less than 30 minutes typically closed 41% of their positions with profits while those who held them for more than 24 hours closed just 39% of their positions with a profit. More than 50% of traders holding their positions for longer than 24 hours did not use stop-losses at all. 

“High inflation, rising interest rates and treacherous periods of volatility have defined much of the past 12 months – all of which have made for extremely difficult trading conditions. This may have encouraged retail traders to exercise caution with greater use of stop-losses and shorter trading times,” explained Hathorn.

First-time traders more profitable when trading FX, Commodities and Indices

Between May 2022 and April 2023, Capital.com’s first-time traders—defined as those clients who have recently opened an account with Capital.com and placed their first trade— displayed a propensity for success when trading commodities, foreign exchange and indices. First-traders were less profitable when trading equities.

On average, clients who began trading for the first time with equities realised a profit in 46% of their positions. In contrast, clients who began trading with commodities realised a profit from 58% of their positions. The other two most profitable markets for first-time traders included FX and indices, with traders closing 56% and 54% of their positions with profits, on average, respectively. 

“It's perhaps unsurprising that first-time retail traders realised more profits from FX, indices and commodities relative to single stocks in the last 12-16 months. With rising interest rates affecting the cost of borrowing and future corporate growth, company earnings have been a mixed bag.  Over the same period however, commodity markets have shown resilience with oil and gas markets benefiting from rising prices while gold has remained the safe-haven asset during a period of heightened uncertainty. Across FX, ongoing global central bank activity provided ample opportunities for traders looking to capital on macro events,” noted Hathorn.

To help new traders develop their understanding of financial markets and make better decisions, Capital.com provides a wide range of educational support, including a free learning app,  Investmate, to support new traders.

“We understand that trading can be a daunting experience for new traders. Sifting through the noise, honing your understanding of markets and making sense of the news are crucial when you get started in trading. That's why we prioritise education and learning to ensure that our clients have access to the best learning aids, explainers, charting and analysis tools to help them make informed trading and investment decisions,” added Hathorn.