‘I lost half-a-million trading on the internet – it's no different to gambling’
Pete wasn’t a stranger to the financial market when he started trading.
He had a job in the markets in the 1990s. But in recent years, a new-found interest in trading financal instruments such as options and contracts for difference (CFDs) has cost him, by his estimates, almost halfa-million dollars in losses.
His first foray into trading in earnest was just under 20 years ago when he was off work for a period. He turned to trading options – rights for the sale and purchase of assets- as a way to get some money coming in.
He had a redundancy settlement, as well as a marriage settlement, and wiped it all out. “$100,000, more or less. My only option was to go back to work. I’ve been able to earn quite well in my career, mostly in IT, so I left all that behind and just dabbled in it from time to time.”
But the next time he started in earnest was during the first Covid lockdown. He had been working as a contractor for a time, had remarried and owned his home mortgage-free. “My contract ended and the lockdown started almost simultaneously. Again, I thought ‘OK, this is an opportunity to get back into the market. I have a bit more experience, I’m battle-hardened’. I was thinking this time I won’t make the same mistakes.”
But he said things had changed, and the environment was even tougher.
“You’re alone at home with a computer, it’s very much a mental and emotional rollercoaster with no support, you’re trading on a global platform, it’s like a giant casino. There’s money to be made and it’s a feeding frenzy. During lockdown I know a lot of people got into online trading – it was a lot more accessible.”
In 2021, the Financial Markets Authority (FMA) said 2% of investors were “day traders” but another 5% said they bought and sold shares at least weekly or fortnightly. Internationally, it has been reported that the use of apps for trading increased by almost 50% between 2020 and 2021.
Pete used an account on CMC Markets to trade CFDs, which speculate on the future direction of a price. Starting with $10,000, he got his balance up to $135,000. “The market was exploding, You literally couldn’t lose. You could throw a dart at a dart board and make money. It plays with your head. My wife was following my trading and said I should take $100,000 out. I said ‘no, this is a platform I can build on there’s no stopping me’.”
He said he was also experimenting with a demo account that got to $3.5 million.
“I was hooked. But in a short time the market turned and I lost all that money and another $200,000. Over time my total losses are $400,000 to $500,000.”
He said he had an account manager who would check in occasionally, but the bulk of his trading was done in the middle of the night, on the American markets.
“It’s dark, you’re alone, you’re not sleeping. It really messed me up. In the end I was purely gambling. I could be financially well off now, but I’m back to square one. I’m not young, I’ve been unemployed for a while now, and I’m struggling to get back into work. That option to recover isn’t really there.
“I’m just aware there’s probably many, many people who have fallen into the same trap. I know I’ve been on online forums and a lot of young people are there – it’s become gamefied with apps on your phone. It’s basically ‘buy, sell’, I have heard stories of people losing everything and more.”
He said he did not think about turning to something like Gamblers Anonymous for help because it did not feel like gambling at the time.
“You’re using a technical system, there’s all this technical jargon – you’re not throwing money on a blackjack table. It’s got a different flavour to it.”
He said he was fortunate in that he never borrowed for his habit, so his house remains mortgage-free. He has a couple of years until retirement.
“But I could be showering my wife with gifts and that sort of thing. I’ve compromised my future in some respects.”
Pete says he’s telling his story because he thinks there are a lot of people like him out there – and that many have shifted from investing to outright gambling, maybe without even realising it.
“I think awareness is a big thing. [People think] people going to casinos and losing money are all losers. They characterise them maybe as a different socio-economic group, a desperation thing, whereas online trading is elevated above that to a certain extent, But it’s no different.”
A spokesperson for the Financial Markets Authority said it did not have any local data but in the UK about 80% of people lost money investing in CFDs. “Our view is that derivative trading is very high risk, even for experienced investors.”
He said licenced derivative issuers (DIs) were subject to conditions as part of their licence obligations.
“Standard condition 12 requires DIs to take all reasonable steps to determine whether retail investors have the ability to understand the particular type of derivative and the risks involved. The FMA continues to review the regulatory settings here in New Zealand and will take action if we consider that licenced derivative issuers have breached their obligations.”
A spokesperson for CMC said it would not comment.