What “74% of accounts lose money” really means

Scroll to the bottom of almost any CFD broker’s website in the UK or EU and you will find a sentence with a number in it. “74% of retail investor accounts lose money when trading CFDs with this provider.” The figure differs from broker to broker. It is the most important figure on the page, and it is easy to skim past.

That number is not marketing. Regulators force brokers to publish it. Here is how it is worked out, and what it can and cannot tell you. (New to the product itself? Start with what a CFD is.)

Why brokers have to show it

In 2018 the European Securities and Markets Authority (ESMA) stepped in on CFDs sold to retail clients. National regulators had studied their own markets. They found that 74–89% of retail accounts typically lost money, with average losses per client of €1,600 to €29,000.

The studies were consistent from country to country. In France, more than 89% of retail clients lost money. In Spain it was about 82%, in Poland 79%, in Cyprus 76%. The UK’s Financial Conduct Authority (FCA) found 82% in its own sample of client accounts.

ESMA’s response, applied from 1 August 2018, was a package of rules:

• Leverage caps, from 30:1 on major currency pairs down to 2:1 on cryptocurrencies.
• A margin close-out rule: positions must be closed when your account falls to half the margin required.
• Negative balance protection, so you cannot lose more than the money in your account.
• A ban on bonuses and other incentives to trade.
• A standard risk warning showing the share of the broker’s own retail accounts that lost money.

ESMA’s measures were temporary. By 31 July 2019 most national regulators had made rules at least as strict permanent, so ESMA let its own lapse. The FCA brought in permanent UK rules on 1 August 2019. They include the same firm-specific loss figure.

Why a percentage? ESMA noted that the existing product documents described one CFD at a time. None told you how the broker’s clients actually did overall. The loss figure fills that gap. It also gives every client the same information, whichever EU country they trade from.

How the number is calculated

The EU method is set out in the ESMA decision, and it is quite precise.

The broker looks back over the past 12 months. It takes every retail account that had at least one open CFD in that period. For each one, it adds up realised and unrealised profit and loss on CFDs, after all charges, fees and commissions. If the result is negative, that account counts as a losing account.

Deposits and withdrawals are ignored. So are profits or losses on other products, such as shares bought outright. Accounts that never opened a CFD are left out. The figure has to be recalculated every three months.

A broker without 12 months of data cannot just pick a number. It must use the standard wording instead: “Between 74-89% of retail investor accounts lose money when trading CFDs.” That is where the familiar “74%” at the low end comes from.

What drives the losses

The regulators’ own research points to a few causes. They overlap, and they feed each other.

Leverage makes small moves large. With 30:1 leverage, $1,000 of margin controls a EUR/USD position worth about $30,000. A 1% move against you costs around $300. That is 30% of your margin, from a move EUR/USD can make in a day or two. ESMA called out exactly this: leverage, volatile markets and costs can wipe out a position fast. (More on leverage and margin.)

Costs are charged on the full position, not your deposit. This is the part most beginners miss. Spreads, commissions and overnight financing are worked out on the notional value. On that $30,000 position, each pip is worth about $3. A 1-pip spread costs you $3 the moment you open the trade. You start every trade slightly behind.

In ESMA’s words, leverage “increases the impact of transaction costs”. Hold a position overnight and a financing charge is added too, just for keeping it open.

Frequent trading multiplies those costs. Three dollars sounds small. Now trade ten times a day for a month. That is roughly 200 trades and $600 in spread alone, before a single price move. On a $1,000 account, the market has to pay you 60% just to break even.

The data backs this up. Norway’s regulator found that clients’ trading costs averaged 37% of their capital. It put that down to high leverage combined with frequent trading. Italy’s regulator found that more trades went with bigger losses. The French study found something sobering too. Clients who kept trading for longer did not do better. The regulator read that as a sign there was no learning curve.

How to read a broker’s figure

The percentage is useful, but only if you read it for what it is. (Want the one-minute version? See our quick answer.)

It counts accounts, not money. An account that lost $5 counts the same as one that lost $50,000. The figure tells you how many clients ended the period down, not by how much.

It reflects the broker’s clients as much as the broker. A broker whose clients mostly hold index positions for weeks may show a different figure from one whose clients scalp currencies all day. The kind of trader a firm attracts moves the number.

It changes. Because it is recalculated every quarter over a rolling 12 months, a calm or a wild year in the markets will push it around. Check the date or the current figure, not one you saw last year.

It is not a ranking. A broker showing 70% is not automatically “better” than one showing 78%. Treat the figure as a reality check on the product, not a score for the provider. When you compare brokers, look at what you will actually pay and who licenses the firm.

And it applies to you. Whatever the exact number, most retail accounts lose. Your account is not exempt because you have read a strategy guide.

Using the number well

The best use of the figure is as a prompt to ask yourself some questions before you trade:

• Do I understand that costs are charged on the full position size?
• Have I worked out what a normal week of trading would cost me in spreads, commissions and financing?
• Would I be fine if this money were gone?

If any answer is no, a demo account costs nothing. Use it until the answers change.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Most retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.