Capital.com’s retail trading data reveals negative ROIs and resurgence of meme stocks
“2023 has seen the resurgence in meme stocks with new players coming onto the scene. Despite the 2021 fan-favorites 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.”
Capital.com has released intriguing data showcasing the success of UK-based traders who adopt a balanced approach by executing both long and short trading positions.
The findings reveal a notable shift in trading behavior during the first half of 2023, with traders incorporating a mix of strategies to adapt to the dynamic market conditions.
Traders with a 100% long ratio reported a -13% ROI
The data, gathered from an analysis of 4,965 UK traders actively using the Capital.com platform from January 1, 2023, to June 31, 2023, demonstrates that traders who embraced a combination of long and short positions outperformed their peers who stuck to long-only or short-only strategies. Specifically:
- Traders with a 100% long ratio reported a -13% return on investment (ROI), the lowest ROI during the period.
- Short-only traders, those exclusively opening short positions (0% long), achieved an average ROI of -8%.
- Traders who balanced their portfolios with both long and short positions exhibited an average ROI of -0.9% during the same period.
- The data further highlights that the most profitable long/short ratio in the first half of 2023 typically ranged between 50% to 70% in the long direction. This finding underscores the advantages of maintaining a diversified approach to trading in a market characterized by fluctuations and uncertainties.
Daniela Hathorn, Senior Market Analyst at 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 into their trading strategies.”
Long/short strategies, when complemented with risk management tools like stop-loss orders, offer traders a valuable approach to navigate volatile markets while potentially profiting from short-term rallies and price declines.
Resurgence of meme stocks in 2023
Capital.com’s data also reveals a shift in trading preferences among UK traders. During the first half of 2023, only 28% of clients on the UK platform engaged in long-only trading, marking a noticeable decline from previous years when long-only traders accounted for 44% and 50% of all UK traders on the Capital.com platform.
Hathorn explained this change, stating, “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.”
Additionally, the data highlights specific trading sentiments in 1H 2023:
- UK traders exhibited net-long positions in companies like Bed, Bath & Beyond, AMC Entertainment Holdings, Rolls Royce, Alphabet, and Spot Palladium.
- On the flip side, net short sentiment was most commonly expressed in FX pairs, the Germany 40, and US 50 indices.
Hathorn noted the resurgence of meme stocks in 2023, stating, “2023 has seen the resurgence in meme stocks with new players coming onto the scene. Despite the 2021 fan-favorites 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.”
Regarding indices, she mentioned, “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.”
Capital.com recognizes the importance of educating traders on various strategies, including short-selling, to help them navigate complex markets.
The platform offers a wealth of educational resources, including explainers, videos, and extensive content through its education hub. It also provides risk control measures like stop-loss orders to help traders minimize losses, especially when executing short positions.
These insights from Capital.com’s data emphasize the significance of a balanced long/short approach in today’s trading landscape, where adaptability and strategy diversification are key to success.