95% of traders lose... This is nothing more than a myth.

[forker]

Time and time again i have seen posts from traders stating that 95% fail. Personally believe this myth was started by vendors as a sales medium.To all you traders that actively state this and believe it; i challenge you to prove it through facts not spit. US forex brokers are now forced to disclose the percentage of active forex accounts that are actually profitable. Finally we have access to data that can shed light on this subject. Forex Magnates reports on this data and although the data is not free, there are reports available on the net if you dig around. I have attached 2 that took me about 2 minutes to locate.

 

[the hare]

US forex brokers are now forced to disclose the percentage of active forex accounts that are actually profitable.

My understanding was they are forced to disclose the percentage that are profitable over a 3 month period.

If thats the case (and I think its is), then in the case of punters who are swing trading, only taking a few dozen trades during that period there'll be a significant number who are profitable just by random chance.

The same argument can be used with CTA's, look how many are profitable for 1 year, then 2 years, then 3 years etc. Typically you'll find the numbers reduce by 50% or so with each passing year.

I personally think 95% is way underestimating the true figure.

Lets not forget, not all accounts are equal. If trader A gains $100 on his micro account, and trader B loses 3M from a 50M account, these stats would show 1 profitable trader, and one losing trader. There needs to be far greater disclosure before you can even begin to draw any conclusions.

In every case where sufficient data is provided, and performance is stripped bare, it tells exactly the same story, and that is, most fail, and it really doesnt surprise me. I'd be amazed if there's more than 3 people posting here who have the first clue.

 

[forker]

the 3 month period is more than sufficient to support the counter-argument. in the 2011 report they include changes from the prior quarter which doesn't show a major fluctuation. this data is more substantial than the lack of data supporting the 95% myth

 

[the hare]

the 3 month period is more than sufficient to support the counter-argument. in the 2011 report they include changes from the prior quarter which doesn't show a major fluctuation. this data is more substantial than the lack of data supporting the 95% myth

My understanding is as follows. A broker has for example 100,000 clients. In the 3 month period Jan-March maybe 25,000 clients are profitable over that period. They report that as 25% profitable.

In the period April-June 28,000 are profitable over that 3 month period. The 25,000 who where perviously profitable may or may not form part of the new 28,000. The previous 25,000 profitable traders could have all blown their accounts by this stage.

The only way you'll ever know is if the broker discloses anonymised data. There's absolutley no reason (other than committing commercial suicide) why they cant provide this data. Ask any broker representative posting here at t2w direct questions on this issue and they'll run a mile.

Ask the direct question how many are profitable after 3,6,9,12,15,18,21,24 months etc. If the brokers could report how many clients where profitable on a day by day basis they would, but the longer the reporting frequency, the worse its going to look for them.

Every source of verified statistical data, CTA records, long term fund performance etc backs up the 95% fail argument. Its a case of being fooled by randomness, and a 3 month window is more than enough to pull the wool over the eyes of most of their punters.

 

[DionysusToast]

Didn't the number go down when one of those brokers was caught reporting "interest paid on cash balances" as profits????

 

[forker]

i see your point however, i know and you know that people who cant trade wont be successful over a 3 month period. There is probably a fraction of people that have a winning streak but this in my opinion cant be 75 to 80 percent of those in the successful category. that would just be abnormal

 

[the hare]

There is probably a fraction of people that have a winning streak but this in my opinion cant be 75 to 80 percent of those in the successful category. that would just be abnormal

I can see where you are coming from. IIRC if punters where trading completely at random (and most are), around 12% would be still be profitable by chance after 100 trades.

I trade a lot of random systems, and its often surprising how many achieve a profit over a 3 month period.

You could probably also argue at a push that that there's often an asymetry in reward:risk amongst new traders, either by use of large stops and small targets, or martingale position sizing etc. Those types of strategies could potentially result in winning streaks of a duration greater than 3 months. In those cases the streaks are a by product of the methods being used.

At the extreme, Imagine if a broker has 100,000 clients trading like HoCo, their 3 monthly statistics are going to look great, but the reality is noone would be profitable long term.

A 3 month sample is measuring varience, not long term performance, and when long term performance is measured, its not a pretty picture.

 

[Eric Geddes]

A very interesting topic and discussion so far. However, for it to be truly meaningful we must have a definition of "profitability". I suspect that once having defined profitability it will be extremely difficult to unearth relevant statistics.

For starters, I think we need to know for any particular trader:
1. how many trades?
2. over what period?
3. size of trades
4. drawdown
5. instrument traded

................and no doubt lots of other parameters that don't readily occur to me right now.

I hope we can make progress on all of this -- it's one of those urban myths that definitely needs nailing.

 

[forker]

maybe T2W could implement an anonymous statistics feature that can track our community performance like zulu trade but without the names. it would certainly answer all our questions and this one in particular thoroughly. i think forex factory are doing something along these lines but they only track individual performance.

 

[Rhody Trader]

I may be able to provide some clarity to this question in the not too distant future. I've go hold of a set of data on forex traders that covers a couple of years for some research I'm going to be doing. Part of that research will look at profitability in just this fashion. When I have the figures I'll post them, though I can't promise a time frame yet. It's a massive data set.

 

[the hare]

I've go hold of a set of data on forex traders that covers a couple of years for some research I'm going to be doing..

Where any restrictions imposed on you by the provider of this data ?, or are you free to analyse and publish anything you like ?

 

[Rhody Trader]

Where any restrictions imposed on you by the provider of this data ?, or are you free to analyse and publish anything you like ?

It's intended for academic research (I'm starting a PhD in the fall), but I've got a good relationship with the provider, so I'll be able to publish interesting stuff in a non-academic fashion along the way.

 

[VielGeld]

I would be very interest in the results myself. Trading is so unlike many other activities in many ways, that I'm curious to know what will come of it.

 

[new_trader]

95% of traders lose money on a day by day basis makes sense to me. It's not necessarily the same 95% each day. In a zero sum game in order for someone (Hedge fund, pools, Large operator) to make a huge sums of money a lot of people would need to lose small sums of money. Intuitively it makes sense.

 

[Rhody Trader]

95% of traders lose money on a day by day basis makes sense to me. It's not necessarily the same 95% each day. In a zero sum game in order for someone (Hedge fund, pools, Large operator) to make a huge sums of money a lot of people would need to lose small sums of money. Intuitively it makes sense.

I'd go the other way and suggest that on any given day it's probably more random. The 95% figure is meant to mean in the long run and reflects the idea that like in a game like poker a combination of skill and luck will see a narrow group end up with all the money.

Also, keep in mind that to a large degree retail forex traders don't operate in the same pool as the institutions.

 

[NVP]

I thought the 95% was levelled at EVERYONE who has tried to trade

The Problem with Trading is that it has low (physical) barriers of entry - with Brokers actively encouraging people to step up and have a go :innocent:

so you will always have a very very high churn (Failure) rate....as everyone thinks they will win once they've visited a few Vendor sites and then read their Junk mail in-box .....

N

 

[NVP]

and does the loss only register when the Trade is closed ?

Theres open losing trades out there in Vendors accounts older than most teenagers !

N

 

[Rhody Trader]

and does the loss only register when the Trade is closed ?

The figures are based on equity, not balance, to the best of my knowledge.

 

[nowtoday65]

95% of traders lose money on a day by day basis makes sense to me. It's not necessarily the same 95% each day. In a zero sum game in order for someone (Hedge fund, pools, Large operator) to make a huge sums of money a lot of people would need to lose small sums of money. Intuitively it makes sense.

Do you really think that hedge fund managers etc. make their money from lots of retail traders losing small amounts of money?

Forex might seem to be a zero sum game to retail traders but I expect someone with 2000 odd posts to know a little more.

 

[new_trader]

Do you really think that hedge fund managers etc. make their money from lots of retail traders losing small amounts of money?

No, I think their money comes out of thin air.