Derivatives · Beginner · 4 min

Why most retail CFD accounts lose money

You can explain what EU regulators found about retail CFD results, why regulators intervened, and the main reasons behind the losses.

Regulators stepped in

Regulators rarely restrict a whole type of product for private investors. In 2018, the European Securities and Markets Authority did exactly that with CFDs, and banned binary options for retail clients outright.

The reason was a set of numbers collected by national regulators across Europe. This lesson looks at those numbers, the reasons behind them, and what they mean for anyone considering leveraged products.

Leverage, costs, behavior

ESMA reported that national regulators' analyses had found:

between 74% and 89% of retail CFD accounts lost money,
with average losses per client ranging from 1,600 to 29,000 euros.

ESMA used its powers of product intervention under the EU's MiFIR regulation to restrict CFDs for retail clients: leverage limits, margin close-out, negative balance protection, a ban on incentives and a standardized risk warning with the provider's own loss figure. National regulators later made these measures permanent.

ESMA pointed to the products' complexity, excessive leverage and the gap between the returns clients expected and the risk they took. In terms of this course, three forces explain most losses:

Leverage magnifies every move and every mistake, as the lessons on leverage showed.
Costs, spreads and overnight financing, are paid on every trade and every night, whether the trade works or not.
Behavior: many traders take gains early and hold losses too long, trade too often and increase size after losses.

The pattern is not limited to CFDs. Germany's BaFin studied turbo certificates, another leveraged product, and found that 74.2% of retail investors lost money between 2019 and 2023, on average 6,358 euros each.

Turbos: 74.2% lost

Imagine 100 fictional retail traders who open CFD accounts in the same month.

Based on the range ESMA cited, around 74 to 89 of them would end up with a loss.
The losses would not be evenly spread. Some would lose a little, some their whole account.
The few who end up in profit are not necessarily skilled. Over short periods, luck plays a large part.

That is not a reason to think that trading is impossible. It is a reason to start with small stakes, low leverage, strict costs control and a written plan, and to measure results honestly.

Common mistakes

"The statistics are for others." Most traders believe that.
Blaming only the provider. Leverage, costs and behavior explain most losses.
Raising leverage to recover losses. It speeds up the decline.
Judging success by a few good trades. Short periods say little.

The takeaway

EU regulators found 74 to 89% of retail CFD accounts lost money and restricted CFDs in 2018. Leverage, costs and behavior explain the losses.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the reason that turns a normal move into a large loss.

Tap the chart.

Leverage magnifies both gains and losses, which ESMA named as one reason for its intervention.
2What share of retail CFD accounts lost money, according to the analyses ESMA cited in 2018?

ESMA reported that national regulators found losses on 74–89% of retail CFD accounts.
3What is a product intervention?

ESMA used product intervention powers under MiFIR to restrict CFDs and ban binary options for retail clients.
4What did BaFin find for turbo certificates, a related leveraged product, for 2019 to 2023?

BaFin's market study found 74.2% of retail investors lost money with turbo certificates, 6,358 euros on average.

of 4 correct.