Capital.com Data: One Directional Traders Were Less Profitable than Traders Who Executed Both Long and Short Trades in 1H 2023
- Trading Systems
- 12.09.2023 09:25 am
According to data compiled by high-growth global retail trading platform Capital.com, UK-based traders who opened a combination of both long and short trading positions were more profitable than those who executed long or short-only strategies in 1H 2023. Just 42% of all positions opened by short-only traders were profit-making in 1H 2023, while 46% of all positions opened by long-only traders were profit-making over the same period. By comparison, more than 50% of all trades opened by traders using a mix of both long and short positions at various points during the first half of 2023, resulted in profits.
The data— based on an analysis of 4,965 UK traders who were actively trading on the Capital.com platform between 1 January 2023 and 31 June 2023 — found that clients who executed trades with a 100% long ratio had a -13% return on their investment (ROI) , the lowest ROI for the period. While short-only traders —traders who opened 0% long positions— achieved a -8% return on their investments, on average. Long/short traders reported an average rate of return of -0.9% over the same period, a stronger ROI compared to long-only and short-only traders. The data showed that the most profitable long/short ratio in 1H ranged between 50% to 70% in the long direction.
These findings affirm how using a mix of both long and short trading strategies can be beneficial in the current trading environment. Daniela Hathorn, Senior Market Analyst, Capital.com, said:
“Markets never move in one direction forever and the first half of 2023 showed this to be true. As markets walked a tightrope between economic recovery and lower stock market returns, UK traders responded by moving away from long-only or short-only trades to incorporate both long and short positions to their trading strategies. Long/short strategies, when used alongside a stop loss, can be a useful strategy to help minimise market exposure while potentially profiting from short-term rallies, along with price declines.”
According to Capital.com’s data, just 28% of all clients trading on the UK platform in 1H 2023 were long-only traders. This marks a change from the past two years when long-only traders accounted for 44% and 50% of all UK traders on the Capital.com platform, respectively. The declining number of long-only traders signals a shift in retail trading behaviour.
“It’s widely known that retail traders usually buy in anticipation of a price rising — and then sell to close the position to realise a profit or loss. They are very rarely short-sellers. But this trend appears to be changing. Our data affirms how UK traders are adapting their strategies as we enter what appears to be a bearish market where opportunities to derive value from rising markets are reduced,” added Hathorn.
Traders go long meme stocks and short the indices
In 1H 2023, UK traders were most frequently net-long Bed, Bath & Beyond, AMC Entertainment Holdings, Rolls Royce, Alphabet and Spot Palladium.
“2023 has seen the resurgence in meme stocks with new players coming onto the scene. Despite the 2021 fan-favourites having been crushed since their heyday, it’s common to see traders flock to the popular meme stocks in case they are also part of the resurgence in risk appetite,” said Hathorn.
Over the same period, net short sentiment was most frequently expressed across FX pairs, the Germany 40 and US 50 indices.
“With regards to indices, the end of 2022 and the start of 2023 painted a dire picture for economies around the world, with recession forecasted in many countries. Because of this, expectations were for stocks to underperform as traders looked for safer returns in the likes of the US dollar and other safe haven assets like Gold. That said, economies have turned out to be more resilient than originally forecasted with many central banks on track to achieve a “soft landing” which has led to an unexpected rally in equity markets, boosted by the strong demand for AI technology,” she added.
To help traders learn more about different trading strategies, including short-selling strategies, Capital.com offers explainers, videos and extensive educational content across its web and app platform through its education hub. The platform also offers risk control measures like the stop loss order to help minimise losses, especially when executing short positions.