In life we generally want to be right. This is why you may hear traders framing their trading success by saying they won nine out of the last 10 trades, or that they have a 90% success rate.

However, having lots of winning trades does not necessarily mean that you will be a profitable trader in the long run. This concept is Ray Downer, Senior Trader Coach at Learn to Trade, explores below as he talks Finance Monthly through trade expectancies.

Let’s take two traders: Sarah and Mike are both traders that have placed 100 trades and started with the same amount of money in their trading account:

• Mike wins 75 trades and loses 25 trades
• Sarah wins 30 trades and loses 70 trades

Who is the better trader?

Although we can see Mike is right more often than Sarah is when trading, to determine who is the better overall trader we are missing some key pieces of information.

Firstly, we need to know the amount of profit made when one of our traders is right, as well as the amount lost when wrong. Another way of putting this is that we need to know our traders’ average reward-to-risk over their 100 trades.

So let us look at both of our traders again, but this time take into consideration their reward-to-risk:

• When Mike is right he makes a profit on average of £100 per trade; when wrong he makes an average £300 loss. This means that his reward-to-risk is 1:3.
• When Sarah is right she makes £300 on average per trade and when she’s wrong she loses on average £100. This means she has reward-to-risk of 3:1.

This gives us a bit more insight into the traders. We can see that mike, for example, is willing to risk three times more than he stands to gain in any one trade. Sarah in contrast is looking for a bigger pay-off but not willing to risk as much as Mike per trade.

Neither of those approaches is inherently good or bad as a trading strategy.

To really understand how each of our traders’ strategies stack up against each other, we need to take into consideration the two things we have mentioned here: firstly how frequently our traders have winning trades and secondly how much is gained or lost with each trade.

In trading terms, what we are figuring out is Mike and Sarah’s trade expectancy. Trade expectancy essentially tells us how much we stand to gain or lose as a trader for every pound risked.

Expectancy = (average gain x probability of gain) – (average loss x probability of loss)

We can make this a bit clearer using Mike and Sarah’s results:

• Mike’s expectancy per trade = (£100 win x 0.75) - (£300 loss x 0.25) = £0
• Sarah’s expectancy per trade = (£300 win x 0.3) - (£100 x 0.70 loss) = £20

What this tells us is that over the long run Mike is breaking even with each trade despite winning 75% of the time. As a trader the long term goal is of course to make a profit rather than break-even or lose money. For Mike’s strategy to become profitable he either needs to win more often and/or reduce his risk per trade.

Sarah’s expectancy tells us that she is making an average £20 per trade in the long run, even though she is winning just 30% of her trades. Her reward-to-risk strategy means that she can be wrong much more frequently than Mike, but still make a profit overall.

Both Mike and Sarah’s expectancy can improve or worsen depending on trading conditions and whether they stick to their trading plans. Nevertheless, expectancy is a good benchmark to evaluate a trading strategy. You could also think of expectancy as how much you can theoretically expect to get paid for each trade you take over time.

As we all know, it’s impossible to always be right when trading forex. However, figuring out your expectancy helps shift focus away from being right per trade to instead how right you are overall.

An independent study commissioned by Dun & Bradstreet reveals a UK business community that believes it has already lost out due to the EU referendum. When asked how the Brexit process has affected business finances, 43% of business leaders say they have felt a negative financial impact since the Brexit vote. More than a third (37%) say they have lost out on potential revenue and, on average, businesses say 19% of their revenue will be put at risk by Brexit.

Two years on from the vote, almost a third of business leaders (32%) reveal that their organisation has or is planning to reduce UK investment, and almost a quarter (23%) have already halted or slowed their plans for expansion in the UK. This suggests businesses could be considering moving activities elsewhere in the EU or beyond, or simply downsizing the scale of activities in the UK.

When asked about their initial reaction to the 2016 EU referendum in a previous survey, business leaders’ views mirrored those of the general population, with 42% saying it was positive and 41% negative. Despite this fairly even split of opinion initially, it appears that optimism has waned significantly since then. The recent study found only 23% of leaders feel that the impact of Brexit has been positive, with 42% citing that Brexit has had a negative influence on their business.

Political instability, including Brexit, has been the biggest challenge that the majority (51%) of businesses have faced over the past two years. Many are still unsure of how the negotiations and outcomes will affect their business and views remain split. Almost a quarter (24%) say leaving the single market will impact them most, followed by the regulatory landscape (18%), the length of the potential transition period (15%) and the settlement on migration (13%).

However, the research also highlighted that not all businesses believe Brexit will have an impact on their business, positively or negatively, and in fact, a fifth (21%) of businesses believe that Brexit will have no impact at all. Moreover, over half (51%) of business leaders feel the impact of Brexit has not been as negative as they first anticipated. Perhaps most critically, over half of businesses are confident that they will survive and thrive after Brexit.

Commenting on the results, Edward Thorne, Managing Director UK of Dun and Bradstreet said: “As we move closer to the Brexit deadline, it’s evident that there is still a high level of uncertainty amongst UK businesses about their future in a post-Brexit era. Our research suggests that businesses have already been affected financially and are still unclear about further impacts once the UK does leave the EU. How businesses get ahead and plan for Brexit will be crucial to their future success.”

(Source: Dun & Bradstreet)

Are you planning to leave the bank and start FinTech company? Watch this video first

UK-based bank Standard Chartered announced a 22% drop in Group operating profit for the first quarter of 2015, at US$ 1.47 billion (€1.35 billion) compared with US$ 1.87 billion (€1.7 billion) for the same period in 2014.

The bank’s Interim Management Statement listed first quarter income down by 1% on a constant currency basis. Headline income of US$ 4.4 billion (€4 billion) was down 4%, 1% of which was the result of business exits.

Peter Sands, Group Chief Executive, commented: “We are on schedule to deliver a Common Equity Tier 1 ratio of between 11% and 12% and sustainable cost saves in excess of US$ 400 million (€365 million) in 2015. Trading conditions remain challenging and the actions we are taking to de-risk, cut costs and build capital are having an impact on near term performance. However, underlying business volumes generally remain strong. We remain confident in the strength of our franchise, the opportunities in our markets and in our ability to build returns to an attractive level in the medium term.”

Earlier this year, Standard Chartered announced the closure of its institutional cash equities, equity research and equity capital markets (ECM) activities, leading to 200 job losses. The decision to close its equities business formed part of its austerity measures announced in November 2014 with the aim of saving $400 million (€365 million) in 2015.

Overall, the Group remains highly liquid and well capitalised, with ratios well above current regulatory requirements. Group Risk Weighted Assets were slightly up on the year end and the bank stated it is well advanced on its plan to take out US$ 25-30 billion (€23-27 billion) in the next two years.

The UK’s RBS Group announced an attributable loss of £3,470 million (€4.7 billion) in 2014, compared with a loss of £8,995 million (€12.3 billion) in 2013, when it posted its 2014 financial report today.

However, the beleaguered banking group said it was making further progress towards a stronger, safer and more sustainable business.

“Last year we identified the areas we needed to improve in order to deliver our strategy - cost, complexity, capital and trust from our customers. The energy and resolve of our people have resulted in significant progress on each, and we have delivered on the goals we set for 2014,” said Ross McEwan, Chief Executive, RBS.

The 2014 results included a loss from discontinued operations of £3,445 million (€4.7 billion), which reflected a £3,994 million (€5.5 billion) fair value write-down in relation to the reclassification of Citizens to disposal groups, and a tax charge of £1.9 billion (€2.6 billion) which included a £1.5 billion (€2 billion) write-off of deferred tax assets.

Operating profit totalled £3,503 million (€4.8 billion) for 2014, compared with an operating loss of £7,500 million (€10.3 million) in 2013. This reflected improved operating results from the core domestic businesses together with significant impairment releases in Ulster Bank and RBS Capital Resolution (RCR).

Following its results release, RBS announced the following changes to its management team:

• Rory Cullinan will become Executive Chairman of CIB & Capital Resolution. He is currently CEO of RBS Capital Resolution Group (CRG).
• Donald Workman has been appointed as Executive Chairman, Private Banking.
• Rory Tapner, Chief Executive of Coutts, will step down and leave the bank, with immediate effect.

Within the overall strategic shape outlined for Corporate & Institutional Banking (CIB) in 2014, RBS said it is making further changes to improve its medium-term returns, building a stronger, safer and more sustainable business, focused mainly on UK and Western European customers, both corporates and financial institutions, supported by trading and distribution platforms in the UK, US and Singapore.