Retail Traders are Getting Pounded

Key Takeaways:

  • Retail traders are losing large amounts of money this year through inexperience and high risk-taking.
  • Among other errors, retail traders make three common mistakes.
  • A long-term investing mindset has dwindled over the decades.
Retail Traders are Getting Pounded
Retail Traders are Getting Pounded

WISCONSIN ( — Retail traders in 2022 are getting pounded. Cryptos, NFTs, memes, and tech stocks have collapsed this year. In 2021 there was a 35% increase in options trading over 2020. New traders are getting in and getting burned.

retail traders, Retail Traders are Getting Pounded
Retail traders have suffered great losses in 2022. Credit: Bloomberg

Options require little money to enter the markets. Most small-time investors lose, but once-in-awhile they win big. The big wins bring them back, and they lose. Trading turns into a guessing game fueled by greed.

retail traders, Retail Traders are Getting Pounded
This year, unskilled retail traders lost much money in the stock market. Credit: Financial Times

Novice retail traders make almost tragic mistakes. The most common are:

1- Getting a tip about a “great” stock or crypto with little or no personal research. Especially with Initial Public Offerings, people often buy because of the fear of missing out. With common stocks or cryptos, people buy without any market knowledge.

2- Inexperienced retail traders are known for not set stop loss or take profit levels. Greed comes into play as traders believe a move can keep going “just a bit more.” Maybe it does, maybe it doesn’t, but getting out with a modest profit keeps one in the trading game much longer.

3- Not following the adage, “The trend is your friend.” A flood of retail traders believes that if a stock, forex currency pair, or crypto has gone too far in one direction, there must be a reversal coming. Yes, there will always be a reversal, but who can determine the time? Certainly not a novice trader. Joining a strong-trend trade is a much better option.

There are more mistakes, but these are the well-known ones experienced traders learn from.

A Long-term Mindset Has Dwindled Over the Decades

Not all trading losses are due to lousy investors. Sixty years ago, companies listed on the S&P 500 Index had an average longevity of 35 years. In 2020, that expectancy dropped to 20 years; by 2030, it is expected to drop even more to 15 years, making the markets less predictable.

retail traders, Retail Traders are Getting Pounded
The average S&P 500 Index company lifespan is decreasing over time. Credit: Innosight

Long-term investing is on the decline, though. For example, the average investor in 1950 held a stock for eight years. Today, that time frame has decreased to an average of 5.5 months! Famous investor Warren Buffet said about long-term investing, “Our favorite holding period is forever.”

Most Retail Traders Are Millennials

Most retail traders who lose money are the younger generation. They have a much higher tolerance for risk because trading is new for them, and the rawness of losses has not stung much.

The hope is that high-risk retail traders will learn quickly to analyze their bad habits or get out of the industry altogether.  

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