Profitability of fx traders - no opinions, just numbers thank you very much

[BSD]

This is making the rounds.

As expected Signore Pareto rules the roost.

Dunno what Oanda have done to break quite spectacularly out of the mould.

Guess the effect is lingering on because they were my first broker haha.



http://forexmagnates.com/us-forex-brokers-account-profitability-comparison/

 

[BSD]

Reading that Baghdad or whatever his name is guys thread brings up an idea...

Anybody trying to make money off of gullible dimwits ready to believe that the man on the moon can teach them to trade should also be legally bound to disclose the extent of losses suffered from market exposure haha.

 

[meanreversion]

IG 20% profitable accounts, yikes.

What percentage of these brokers are profitable?

 

[TheBramble]

Let's be clear on what data are included and which are excluded

It would be sensible to assume (though it is an assumption) that these data are based upon currently active accounts – i.e. those that have not been closed. I know a quite different picture would emerge if the entire set of all accounts were taken into consideration.

Research independently carried out by Odean, Barber and others indicate the number of retail traders who maintain a consistently profitable trading book and have done so for more than three years represents about 1% of trading accounts opened.

Most are down and out within 6 months of starting having lost all or most of their starting capital. Even when you consider that an individual may make multiple re-entries into the trading foray with a new account/broker each time, this wouldn’t skew that data too much. So the 90-95% fail ‘statistic’ so often quoted is gloriously optimistic.

I’d certainly be interested not so much in the percentage winning/losing as in the distribution of profit and loss among those accounts. I’d stake a stationary plane on a conveyer belt that it would not be a Gaussian curve.

As for OANDA’s data; I’m all for lumpiness and clustering in random data, but that is a little too far out to even be considered a valid outlier. It may be something to do with the fact that OANDA give their premium customers the secret mo’moneynow indicator and that 51% of their customers are premium.

 

[BSD]

What percentage of these brokers are profitable?

Seeing as how a lot of these otc "brokers" are basically bookies I wouldn't be surprised if pretty much most of them are profitable.

 

[BSD]

Tony, I agree the Oanda stats are pretty odd.

Some more info here re methodology:

http://forexmagnates.com/ibfx-account-profitability-report-explained/

I saw sthg yesterday but can't remember where that showed a correlation between size of account and profitability which makes sense obviously, I'll try and see if I can dig that up.

 

[BSD]

Ah here we go:

"FXCM Release Extra Forex Trader Profitability Statistics

Just in case you hadn't noticed, today is October 18th 2010. Today is the day that all those new CFTC regulations come into force, and when a forex trader opens a new account brokers must now reveal to them quarterly account profitability statistics covering the previous year. FXCM have done just that, and here are their numbers:

Quarterly Report % Profitable % Unprofitable Total Non-Discretionary Accounts

Sep – Dec, 2009 26% 74% 22,371
Jan – March, 2010 25% 75% 19,049
April – June, 2010 23% 77% 17,771
July – Sep, 2010 23% 77% 15,023

Comparing FXCM's profitability statistics with Interbank FX's that we published last week reveals firstly that FXCM's clients seem to be slightly less profitable than Interbank's, with an average of 24.25% against 29%. Secondly FXCM has slightly more active non-discretionary accounts, a quarterly average of 18,554 against IBFX's 17,525. Note that FXCM's figures include only accounts with FXCM LLC. I anticipate that FXCM's figures will increase far more than Interbank's for the final quarter of 2010, when lots of dollars that left the United States in search of a balmier forex trading climate on this side of the Atlantic are forcibly repatriated courtesy of the CFTC.

In addition to the legally required statistics, FXCM have also released to us additional information, breaking down profitability by trading account size:

Equity Range % Profitable

$0 – $999 27.89%
$1,000 – $4,999 40.52%
$5,000 – $9,999 42.36%
$10,000+ 47.74%"

http://trading-gurus.com/fxcm-release-extra-forex-trader-profitability-statistics/

Hmm. Even given that this only includes currently active accounts that's
still quite sthg.

 

[bedsit]

Re: Let's be clear on what data are included and which are excluded

So the 90-95% fail ‘statistic’ so often quoted is gloriously optimistic.

.

I got info a year ago about the success rate (retail traders) - it was less than 3%.

 

[meanreversion]

Fck. Seriously, 3% of people extract money from the markets, how can this possibly be so low???

 

[tar]

http://www.trade2win.com/boards/general-trading-chat/105956-95-myth.html

Regarding Oanda's numbers :

http://forexmagnates.com/oandas-high-profitability-numbers-explained-include-interest/

 

[BSD]

Tar, sorry bout that, hadn't seen your prior thread on this. (Was away for a bit).

This is probably the main reason why so many lose, they have a psychological need to be right and clever over a desire to make money:

An Analysis of the Profiles and Motivations of Habitual Commodity Speculators

Abstract

The focus of this study is the habitual speculator in commodity futures markets. The speculator's activity broadens a market, creates essential liquidity, and performs an irreplaceable pricing function. Working knowledge of the profiles and motivations of habitual speculators is essential to both market theorist and policy makers. Responses to a 73 question survey were collected directly from retail commodity brokers with offices in Alabama. Each questionnaire recorded information on an individual commodity client who had traded for an extended period of time. The typical trader studied is a married, white male, age 52. He is affluent and well educated. He is a self-employed business owner who can recover from financial setbacks. He is a politically right wing conservative involved in the political process. He assumes a good deal of risk in most phases of his life. He is both an aggressive investor and an active gambler. This trader does not consider preservation of his commodity capital to be a very high trading priority. As a result, he rarely uses stop loss orders. He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms. In spite of recurring trading losses, he has never made any substantial change in his basic trading style. To this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run. He also worries more about missing a move in the market by being on the sidelines than about losing by being on the wrong side of a market move; i.e., being in the action is more important than the financial consequences. Participating brokers confirmed that for the majority of the speculators studied, the primary motivation for continuous trading is the recreational utility derived largely from having a market position.

http://ideas.repec.org/p/wpa/wuwpfi/9705001.html

Simple lack of discipline, in a nutshell.

The success relevant factors behind losing weight are no more elusive rocket science than the success relevant factors behind net profitable trading, yet for a majority of people both objectives remain exercises in futility, not because they don't know what needs to be done, but because the perceived gratification from not doing it is simply seen as being greater.

We'll have to see how this CFTC list that only offers a snapshot at the moment develops over the years.

 

[tar]

no its ok

 

[BSD]

Ok mate

Here's the result from some automated traders challenge, plus a take from an Oanda rep on their numbers:

2006-
http://championship.mql4.com/2006/users
Total Participants: 258
Total Accounts Over 10k: 44
Profitability Ratio: 17%
2007 –
http://championship.mql4.com/2007/users
Total Participants: 603
Total Accounts Over 10k: 91
Profitability Ratio: 15%
2008 –
http://championship.mql4.com/2008/users
Total Participants: 705
Total Accounts Over 10k: 128
Profitability Ratio: 18%
2010 – Ongoing –
http://championship.mql5.com/2010/en/users/index
Total Participants: 314 (2 disqualified)
Total Accounts Over 10K (Equity): 106
Profitability Ratio: 34%


Oanda rep:

As you called out, one of the biggest take aways from the profitability disclosure is the death of the 95% losing traders myth, even the dealers with lowest profitability numbers disprove that statistic and now thanks to this exchange we can all point to the MT4 contest results as well.

At OANDA we know that over a period of several years, in the range of ~58% of the trades our traders make are profitable (the definition of which is when they closed the individual trade their P/L was showing an increase not a decrease). However, traders tend to lose more when the trade goes against them than they make in profit. What makes it truly interesting however is that if the spread was slightly lower – and of course if you remove the extra fees and overhead some dealers charge – then more individual trades end up on the positive side of the P/L ledger. Many traders are missing profitability by a few pips or breaking even as they swing back and forth from profit and loss. That is what the tough questions PDF is addressing between the lines. All the things mentioned in that document do make a difference.

I would recommend participating in a site like Currensee or MyFXBook (make sure you look at live accounts not demo accounts) and look through some trading history (including your own) and see during unprofitable periods how much of the loss could have been stemmed by a slightly lower spread, good execution (perhaps that requote or slippage that goes against you more than for you) and no fees. Add some interest (paid and charged) into your balances as well and see how much that impacts your final results.

At OANDA our ideal world is to keep finding ways to lower the cost of trading so that more traders come out on the positive side of the P/L equation. Our business model is based on making money from tiny spreads on large volume. Using straight, simple logic: if a trader keeps trading longer, we’ll make more money because more volume will be traded. So in that regard, our interests are aligned with keeping traders active and on the right side of P/L.

Both from here:

http://forexmagnates.com/oandas-high-profitability-numbers-explained-include-interest/

I mean, to be honest, numbers any lower than what seems to be an industry average endorsing Paretos roughly 20 / 80 distribution would really be mind boggling imo, trading just isn't that hard a nut to crack intellectually.

Also, Paul Tudor Jones started out as a broker who witnessed client performance first hand, and he famously remarked that 95% of DAYtraders are net losers, which obviously doesn't include those who hold longer and hence have greater profit potential offsetting individual losing trades.

http://chinese-school.netfirms.com/Paul-Tudor-Jones-interview.html

 

[MrGecko]

As TheBramble point out, this data is pretty worthless without the details of how it was collected.

As for OandA... maybe they have a corporate arm?

 

[scose-no-doubt]

Fck. Seriously, 3% of people extract money from the markets, how can this possibly be so low???

Totally unprepared
Not enough attention to markets - due to work, family, social or whatever other factors
Under-capitalisation/over leverage - nobody wants to spends hours a day for 10p a pip (although it's what i'm considering at the moment lol)
Dedication - failure to sit down and put serious thought and time into developing a strategy based on beliefs
Playing the numbers game - not trading enough at times /over-trading at times.

Just a few things that pop into my mind based on what I see of myself. It's a lot easier to lose money than to make it IMO and I'm sure that the markets attract a lot of people. Do the maths.

 

[TheBramble]

At OANDA we know that over a period of several years, in the range of ~58% of the trades our traders make are profitable (the definition of which is when they closed the individual trade their P/L was showing an increase not a decrease). However, traders tend to lose more when the trade goes against them than they make in profit.

{my emphasis}

I am extremely well acquainted with someone who in their early trading years was managing to turn a profit on 85% of their trades, until they ran out of money....

Pwl is nothing without Aw:Al.

 

[BSD]

{my emphasis}

I am extremely well acquainted with someone who in their early trading years was managing to turn a profit on 85% of their trades, until they ran out of money....

Pwl is nothing without Aw:Al.

Haha absolutely true that.

Whats also interesting is that Oanda exactly corroborate the findings as this study:

"He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms.o this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run."


http://ideas.repec.org/p/wpa/wuwpfi/9705001.html

 

[jiggly]

I am an account manager for a well known market maker.

I have a potfolio of about 400 traders to tend to.

only a handfull of them have been trading for more than 6 months and have taken out more money than they have put in.

its roughly the same with my collegues.

 

[Splitlink]

Tar, sorry bout that, hadn't seen your prior thread on this. (Was away for a bit).

This is probably the main reason why so many lose, they have a psychological need to be right and clever over a desire to make money:

And that makes them a bloody nuisance to the rest.

Still, I think that a lot are hiding their light under a bushel and that it is more than 3%.

I wonder what interests keep telling us that the porcentage of winners is so low and why?

I don't think that it is true, simply because I make a profit out of this and I do not consider myself to be that clever.

 

[Greenlight]

Quote: "I don't think that it is true, simply because I make a profit out of this and I do not consider myself to be that clever"

That gives me hope!