Stoicism in trading psychology: The dawn of the analytic tools that empower traders is here

Automated methods of coercing traders into following other novices in order to split commissions are a thing of the past as retail traders head toward psychological and philosophical dynamics in behavioral trading

Among the major considerations for today’s retail FX brokerages lies one of the most important matters with regard to maintaining a good quality client base without having to resort to anodyne and self-defeating retention marketing.

In the past, at the time when the new arrival of vast numbers of MetaTrader based FX brokerages were in their development stages, affiliate marketing was the elephant in what had been previously a very specifically financial markets-orientated room, causing a series of issues which have since been addressed by regulators, and those that have not been, have been addressed by market saturation of seemingly identical platforms with identical product ranges, subservient to one provider, that being MetaQuotes.

Thus, affiliate-style ideologies such as social trading came to fruition, which ultimately represented a conflict of interest between broker and client due to the commission and volume based capitalization model that most of these entities used, hence there are very few left today.

Today’s trader tends to be far more self-directed and analytical than the retail audience of 10 years ago, therefore placebo-style methods of electronically coercing traders into doing more volumes by following equally inexperienced customers of the same or other b-book white labels in the quest for reduction of the cost of onboarding new clients and eking out the most from a single deposit are a thing of the past.

Over the past two years, attempts to look at stoicism in trading psychology have come about, and some of the analytical companies providing mentorship and education such as Australia’s PsyQuation or some of the quant-orientated platforms used by professional traders combined with trader enlightenment have changed the whole dynamic.

This morning, a series of traders began to discuss the usefulness of stoicism and the intentional endurance of hardship when making self-directed decisions, therefore it is worthy of note to brokerages that these are the types of client that are now far more prominent and more numerous than a few years ago.

“I’m currently reading about Stoicism and mental models(Charlie Munger is a proponent of this ideology). Mental models give you a general approach(derived from various fields of knowledge) to solving various problems one would encounter in life, but Stoicism is what fascinates me the most” said one particular trader this morning during a discussion.

“Modern Stoicism is a amalgamation of Graeco-Roman philosophy and CBT (Cognitive Behavioral Therapy) I think it contains ideas that would be incredibly helpful in developing a trader’s psychology. I’m still studying how it can be effectively incorporated into trading.”

This was met with a substantial response, a retail trader in North America having responded by saying “A big part of Stoicism is taming your emotional responses, which is a vital skill in trading.”

“Also more generally, the Stoic lifestyle focuses on growth (the prokopton, in the never-ending journey to sagehood (similar to Padawans in Star Wars lore, for example). Growth in the three aspects of life: mental, physical, and spiritual. Trading is difficult and always changing, so personal growth is vital for a good trader.”

“As an anecdote, I became personally interested in both trading and Stoicism in parallel and they complement each other very well, IMO. Leaning about markets and watching the world do its thing (external world) and learning about your own “brain OS” (internal world) are both really cool” he concluded.

An indication that many traders are using philosophy in their behavior came via another response, that being “Stoicism has helped me tremendously, not only in trading but life in general. My favorites are Marcus Aurelius, Seneca and Epictetus; I have read all their works. In this particular case there’s no stoicism trading course here but just to underline how the word Stoicism and his moral practice can be abused to obtain just the opposite of what was the goal of Stoicism itself in regard to trading.”

Today, FinanceFeeds spoke to Richard Goers, a highly experienced risk manager and professional trading software engineer who is Managing Director and founder of ManagedLeverage, which produces the ML2 platform.

“At the moment my observations suggest the behavioural aspects to trading are at best, at the margins – but these platforms such as Quantopian and PsyQuation to name 2 that profile clients in order to allocate capital to trade even show that the great majority of retail traders tend to produces low  low success rate of traders migrating to capital is less than 5%, and I wonder if this metric will ever change for retail even in the age of machines.”

“So, my ‘opinion’ suggests, we will see new platforms develop to cater the retail trading but the retail trader will only succeed at the margin, win:loss ratio to stay the same” said Mr Goers.

“As retail margins are higher than institutional there will always be scope for B Book brokers to market their wares, and that the natural law will still see the majority of traders remain losers – and if there is an edge, it will disappear” said Mr Goers.

“Therefore the majority of retail remain in the playing field for brokers to fish, and I think over the coming years, as technology develops [trading platforms, mobile apps, new methodologies in machine trained programs to trade, there should be an exponential growth in the numbers of new traders such countries as Africa, India, middle east come onto the bandwagon , these may be the new fishing grounds, so the show must go on. I also suggest the ‘extreme’ marketing techniques will still be a powerful lure for retail to catch the bait” he said.

“The new platforms now in play, mainly the new kid on the block = the hybrid block chain models or P2P trading are the electric cars of tomorrow with no third party between the trades + no client money sitting with the broker, add little value to the trade intelligence, more the broker cost base.”

In essence, brokers could use the psychological mentorship that traders are using to ensure that they can engage clearly with traders who are prepared to go the hard yards. This could well be the most effective method of client retention there is.

 

Read this next

Executive Moves

Christine Kiener joins Saxo Markets UK as Head of Institutional Sales

“I have been very impressed by the strong track record, clear strategic pathway and ambition of the Saxo business. I am excited to start working with the team to further grow the institutional footprint which has been established in the UK.”

Industry News

CFTC charges Rathnakishore Giri with $12m Bitcoin ponzi scheme

“Identifying and policing fraud in these emerging markets may be difficult or delayed in light of the agency’s limited visibility in these markets”, said CFTC Commissioner Kristin Johnson.

Institutional FX

AbbeyCross raises $2.47m to develop FX market infrastructure for EM currencies

Many EM currencies are currently traded without full-price discovery, creating an unlimited compliance and regulatory risk.

Digital Assets

YouHodler enhances Multi HODL: faster rates and execution, lower fees

“We know some traders mentioned freezing issues when opening or closing a Multi HODL deal. Now, those problems are completely gone”.

Industry News

ASIC bans Funds United Pty director for six years

The six-year ban will prevent Ms. Hutchinson from controlling an entity that carries on a financial services business, and performing any function within the industry.

Inside View

Brave new world: Recruitment of fintech talent in the new UK immigration environment

In this article, solicitor Denise Osterwald outlines what UK businesses should do to attract top talent from abroad.

Digital Assets, Interviews

FX goes Crypto: Exclusive interview with BVNK’s Jonathan Cumberlidge

BVNK is the new name in the City of London. Co-founded by ex-TradFi Chris Harmse, Balfour Group founder Jesse Hamson-Struthers, and ex-TrueLayer George Davis, the firm provides a single platform to bridge fiat and crypto together. 

Digital Assets

AAX ranked world’s second largest spot exchange, only behind Binance

Crypto trading volumes experienced their first surge in activity since March as the majority of digital assets began their recovery from the recent grim price action, according to a new report by Cryptocompare.

Digital Assets

Bitpay teams up with Cardlytics to provide 15% cashback rewards

Crypto payment service provider Bitpay announced a partnership with Cardlytics Inc (NASDAQ:CDLX), which it says will offer more rewards for BitPay cardholders on its platform.

<