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  • Writer's pictureMark Watson-Mitchell

Persistent volatility in 2022 prompts traders to turn more cautious; adapt to new market conditions

The Pulse Report: Persistent volatility in 2022 prompts traders to turn more cautious; adapt to new market conditions


Short-position trades climb 11% y-o-y on Capital.com while stop-loss orders reach a three-year high amid market uncertainty


LONDON, UNITED KINGDOM, 07 February 2023


According to the Q4 2022 Pulse Report published by high-growth trading platform Capital.com, retail traders used a record-high number of stop-loss orders last year and increased their short-position trades amid difficult trading conditions.


The report found that the number of short-position trades on Capital.com grew from 26% in 2021 to 37% in 2022. Over the same period, the proportion of trades that included a stop-loss — a risk-management tool that enables traders to automatically exit a trade before losses mount up — increased from 9 % a year earlier to 12% in 2022, its highest level in 3 years.


Commenting on the findings of the Q4 Pulse Report, Daniela Hathorn, Senior Market Analyst, Capital.com, said:


“High inflation, rising interest rates and treacherous periods of volatility have defined Q4 – all of which have made for extremely difficult trading conditions. Traders reacted by increasing their stop-loss orders and pivoting to short-position trading as they sought to adapt their strategies and respond to market events.”


Stop-loss orders were most prevalent across FX and index markets in Q4 as traders engaged in major macroeconomic events.


The number of GBP/USD trades hit its highest level for the year in Q4 — during British Prime Minister Liz Truss’ short-lived administration — and coincidentally its highest level since 2019. Meanwhile, the percentage of GBP/USD trades with stop-loss orders rose to 16.65% in mid-September and continued to rise, achieving 19.4% by mid-December 2022.


Shorting sentiment access index markets was up 43% in 2022 from a year earlier and 9% higher in Q4 vs Q3 2022. Short trades were prevalent across all major index markets including the Nasdaq100, FTSE100, S&P 500, DAX40 and EURO STOXX50.


“It has been a tough year for the US stock market as a whole with the US500 falling by about 18% last year. But big tech appears to have suffered the largest decline, with the tech-heavy US100 down 32% year on year. As a result, traders were ‘chasing the momentum’ by making more short trades on asset classes that were doing poorly,” said Hathorn.


In another show of how traders turned more cautious in Q4, transactions with ‘take-profit’ orders fell from 12% in Q3 2022 to 8% in Q4 2022. This is a type of order used by traders to close out an open position once the price has reached a certain limit above the purchase price. In addition, the average length of time traders held an open position dipped concurrently, falling from 34 hours in Q3 to 28 hours in Q4.


“This may indicate that retail traders, while exercising caution with greater use of stop-losses and shorter trading times, were perhaps reluctant to cap potential returns during a bear market rally, preferring instead to ride out the rally rather than ‘limit’ their potential returns and ‘take-profit’, explained Hathorn.


In a break from short-position trading, long-only trades were most prominent across commodity markets in Q4. Specifically natural gas and gold.


“Our traders were more traditionally long these markets given the defensive nature of gold against rising uncertainty and climbing energy prices in 2022,” added Hathorn.

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