As anyone who has ever taken a flutter on a nag or lost money to a one-armed bandit knows, winning feels great – losing not so great. It’s no different for those trading shares for a living, but for them the stakes are usually considerably higher.
"Humans are programmed to hate losses more than they like gains. As a result, winning trades are often exited too early while losing trades are held on to with the hope they will change direction," says Ann Hunt, founder of risk management platform Chasing Returns.
Hunt is a computer scientist by training but has always worked in the finance area. She spent 10 years on Wall Street with JP Morgan building risk management platforms and since returning to Ireland has worked as a consultant helping young companies to scale their businesses. It was only when Hunt got personally involved in trading five years ago that she realised the dearth of tech support for retailer traders.
“Trading psychology is the mental makeup that causes fear, greed, ego and other emotions to have an impact on trading decisions. Trading success or failure is as much about how the human mind operates as it is about picking the right stocks,” she says.
“When people are trading in an institutional setting they are overseen by risk managers. When you’re operating alone without performance metrics to inform your decision-making, you’re liable to think fast – and make mistakes – rather than think slow and make better choices.”
The Chasing Returns platform is designed for those who trade shares alone rather than those working in large financial institutions. Professional traders already have access to well-proven performance enhancing tools. Retail traders do not. Hunt says that as a result roughly 85 per cent of retail traders lose money compared with 45 per cent for professional traders. Having recognised that the solution lay in providing retailer traders with a performance metrics anchor that could have a positive impact on their trading behaviour, Hunt used her experience and IT skills to build one.
Bad habits
Chasing Returns helps traders measure their psychological strengths and weaknesses and to compensate for bad habits. “Basically we’re giving them the information with which to make smarter decisions and in trials we showed performance improvements averaging 79 per cent,” Hunt adds.
“For brokers, we are solving the problem of higher than average churn and high drop-off rates when traders don’t get past their own psychological weaknesses. For traders, we are giving them truly personalised insights that will allow them improve their trading habits and returns.”
Hunt set up the business in January 2014 and has spent the last 18 months developing the Chasing Returns platform. She participated in the Launchpad programme for high potential start-ups at the National Digital Research Centre (NDRC) and says the platform will be market ready by October.
Discussions are under way with potential partners and the company’s initial target market is the four million global foreign exchange traders who trade an estimated $400 billion a day. The revenue model is SaaS (software as a service) with tiered monthly subscriptions.
Funding
It has cost about €100,000 to bring the company this far and funding has come from Enterprise Ireland and the NDRC. Chasing Returns employs five people (including a behavioural economist and a professional trader) and Ivan Fox, chairman of Merrion Investment Managers, has recently come on board as a strategic investor.
“My own personal experience of trading led me to spend 70-80 per cent of my trading time building spreadsheets to track my historical performance. My peers were doing likewise. Everybody seemed to have learned individually that they needed to do it and had developed their own – often labour intensive – way of doing so.
“I always wanted to have my own business and once I identified the problem I assembled a team of people I knew could solve it,” Hunt says.
– OLIVE KEOGH
