Is there hope for Forex retail traders wanting to make money?
The numbers are disastrous. Virtually all Forex retail traders lose money. Most of those that persist lose big.
There is no improvement over time, no matter how many years they keep trying, and no matter how much help they get. There is no hope.
How bad are really the stats? And why are they so bad?
Let's look at the evidence.
Citi 2014 presentation of the Retail FX market
They say there are 4 million traders (implying FX), 1.6 million in Asia, 1.4 million in Europe, and 150,000 in the USA.
Mainly male (shocker) and of an average age of 35.
It does not add up.
An AMF doc from the same period looks at 15,000 traders from intermediaries representing 50% of the market.
So 30k for France and 1.4 million in Europe?
Americans are into stocks so their number is much smaller as expected.
An unsurprising quote from the doc: "FXCM accounts larger than $10,000 have profitability that are double the average.
Part of it is likely due to the natural selection of profitable averaged-sized accounts surviving and becoming large accounts."
And the CEO said in an interview the smallest accounts pushed the winrate down.
This doc says "Strictly Private and Confidential" so I won't share it even though it is accessible on the ECB website.
Conflicting evidence: The elusive profitable FX individual investors
According to the paper linked below, a studied sample of 1,231 accounts were found to be profitable on average (0.2%).
www.researchgate.net...TY_AND_MARKET_TIMING
Most people feel bad, demoralized, sick to the stomach, when they hear everyone loses money trading.
Me, I feel bad, disgusted, demoralized, when I hear that noobs have the ability to make money. Almost makes me want to cry.
There is something really rotten about clueless casuals finding success. Yuck I can just picture them being joyful and euphoric.
I don't know, I don't understand, where this data comes from.
I need to wash my eyes with some IG, FXCM, and myfxbook client positions data :)
I need to warm my heart by seing dumb monkeys constantly go against the trend and hold losers for weeks 😊
In this paper we do not know who the guinea pigs studied are, how long have they been in the business?
What we know is how long they subscribed to a service. And the average was 0.27 years, or 3 months.
Those are not your usual daygamblers as:
- The average opening equity is $90,854.03
- Average Holding Time for Trades (in h) 1,508.48 (63 days or 2 months)
- The average total net gain was $190.30 (0.2% of 91k), it might only be from interests
So this paper does not look at average Forex retail traders at all. Stats change completely when you remove the degenerates.
You look at FXCM and IG client stats, you might find 80% short on a big uptrend, then you look at myfxbook - which attracts all the "robot trading" clowns, and 95% are short!
The more daygamblers and "automated expert advisor 🤡" and 800 leveragers you have, the worse the stats.
Remove all these 🤡, and sure then you get a totally different result.
Conflicting evidence: 99% of noobs lose money, now that's what I like to hear
A Forex website with 120,000 subscribers at the time (mostly FX traders) surveyed in 2020 3,127 Forex traders from 32 countries.
97% of respondents trade Forex, 43% Gold, 24% stock indices, and 9% cryptocurrencies.
Half of users surveyed are 25 to 34 years old, mostly men, and 1 in 4 is 35 to 44. Roughly consistent with other stats, a bit younger.
72% of the Forex traders surveyed are fresh noobs, they had no previous experience before FX.
The retail "traders" surveyed are a tad bit delusional, as 50% of Americans, 59% of Asians, 44% of Europeans, 42% of Oceanians and aye aye aye 100% of Africans think they can achieve more than 5% monthly returns. Between 1 in 2 and 1 in 3, and even 88% of Africans, think they can make more than 10% monthly.
Typical stats: 53% have been trading for less than a year, I assume those are the "5% to over 10% monthly" types?
39% have been trading for 1-3 years, 7% for 4-10 years, and 1% for more than 10.
The success rates (I believe this is self-reported):
Conflicting evidence: Run for your lives! Forex is an evil scam!
This may sound like an exaggeration, but I have the video.
A lady from the french regulator, on television, was screaming "YOU HAVE TO FLEEEE FOREX DON'T YOU GET IT. R.U.N. A.W.A.Y!!!"
In the AMF report "Étude des résultats des investisseurs particuliers sur le trading de CFD et de Forex en France" they come up with scary stats.
Close to 90% of traders lost money in the 2009-2012 period, and even the more experienced ones that traded for the entire period (48 months) lost money at 87.56%.
They have a graph "losses by leverage" but nowhere on that graph is indicated leverage...
And of course there is no distinction between day gamblers and the rest, as their goal is to scare people away.
You cannot say I am biased towards defending Forex, you know how much I LOVE watching noobs break their teeth.
Honestly, this doc is pretty bad, and just pointless fearmongering with nothing to learn that we don't already know (90% lose money).
In a BOJ doc I saw that around 90% of individual "investors" were day gamblers. Explains why 90% lose money.
Ok so retail loses money when day trading I get it, but then how do institutional traders make money intraday? What is their secret?
Simple. They don't. That's the big secret.
There are other sets of data, like what FXCM did for us a few years ago, showing that traders with a risk to reward of 1:1 or more were greatly more profitable than bagholders with high winrate (3.12 times as much):
"Of the traders who traded 1:1 or higher risk-reward, 53% turned a profit; of those who didn't, 17% turned a profit."
Also they show 40% of their traders with 5:1 or less leverage make money, compared to 17% of the ones with > 25:1, and the ones that do make profit with this leverage probably only made a small deposit compared to their net worth.
For obvious reason you'll never hear from a broker the correlation between day gambling or not and profitability.
I heard from someone that worked at FXCM that they tried looking for an edge from their biggest losers, all that they found is they overtraded, this is again something you'll rarely hear from brokers for obvious reasons.
In the end all we can take out from all of this, is some win, most lose. There is at least some little improvement with experience.
"Intraday" Gamblers and leverage gamblers are gigantic losers that destroy the stats, as most of us I am sure already knew.
And as Locke and Mann (2000) show in a study "there is evidence that trading success is negatively related to the degree of loss realization aversion."
Might also want to add: Be a one trick! Warren Buffett is one big fat OTP that only value invest in blue chip US stocks in sectors he understands.
1 market. 1 strategy. And he is doing rather well unlike all the loud mouths with zero life medals that say he "misses out".
There is no improvement over time, no matter how many years they keep trying, and no matter how much help they get. There is no hope.
How bad are really the stats? And why are they so bad?
Let's look at the evidence.
Citi 2014 presentation of the Retail FX market
They say there are 4 million traders (implying FX), 1.6 million in Asia, 1.4 million in Europe, and 150,000 in the USA.
Mainly male (shocker) and of an average age of 35.
It does not add up.
An AMF doc from the same period looks at 15,000 traders from intermediaries representing 50% of the market.
So 30k for France and 1.4 million in Europe?
Americans are into stocks so their number is much smaller as expected.
An unsurprising quote from the doc: "FXCM accounts larger than $10,000 have profitability that are double the average.
Part of it is likely due to the natural selection of profitable averaged-sized accounts surviving and becoming large accounts."
And the CEO said in an interview the smallest accounts pushed the winrate down.
This doc says "Strictly Private and Confidential" so I won't share it even though it is accessible on the ECB website.
Conflicting evidence: The elusive profitable FX individual investors
According to the paper linked below, a studied sample of 1,231 accounts were found to be profitable on average (0.2%).
www.researchgate.net...TY_AND_MARKET_TIMING
Most people feel bad, demoralized, sick to the stomach, when they hear everyone loses money trading.
Me, I feel bad, disgusted, demoralized, when I hear that noobs have the ability to make money. Almost makes me want to cry.
There is something really rotten about clueless casuals finding success. Yuck I can just picture them being joyful and euphoric.
I don't know, I don't understand, where this data comes from.
I need to wash my eyes with some IG, FXCM, and myfxbook client positions data :)
I need to warm my heart by seing dumb monkeys constantly go against the trend and hold losers for weeks 😊
In this paper we do not know who the guinea pigs studied are, how long have they been in the business?
What we know is how long they subscribed to a service. And the average was 0.27 years, or 3 months.
Those are not your usual daygamblers as:
- The average opening equity is $90,854.03
- Average Holding Time for Trades (in h) 1,508.48 (63 days or 2 months)
- The average total net gain was $190.30 (0.2% of 91k), it might only be from interests
So this paper does not look at average Forex retail traders at all. Stats change completely when you remove the degenerates.
You look at FXCM and IG client stats, you might find 80% short on a big uptrend, then you look at myfxbook - which attracts all the "robot trading" clowns, and 95% are short!
The more daygamblers and "automated expert advisor 🤡" and 800 leveragers you have, the worse the stats.
Remove all these 🤡, and sure then you get a totally different result.
Conflicting evidence: 99% of noobs lose money, now that's what I like to hear
A Forex website with 120,000 subscribers at the time (mostly FX traders) surveyed in 2020 3,127 Forex traders from 32 countries.
97% of respondents trade Forex, 43% Gold, 24% stock indices, and 9% cryptocurrencies.
Half of users surveyed are 25 to 34 years old, mostly men, and 1 in 4 is 35 to 44. Roughly consistent with other stats, a bit younger.
72% of the Forex traders surveyed are fresh noobs, they had no previous experience before FX.
The retail "traders" surveyed are a tad bit delusional, as 50% of Americans, 59% of Asians, 44% of Europeans, 42% of Oceanians and aye aye aye 100% of Africans think they can achieve more than 5% monthly returns. Between 1 in 2 and 1 in 3, and even 88% of Africans, think they can make more than 10% monthly.
Typical stats: 53% have been trading for less than a year, I assume those are the "5% to over 10% monthly" types?
39% have been trading for 1-3 years, 7% for 4-10 years, and 1% for more than 10.
The success rates (I believe this is self-reported):
Conflicting evidence: Run for your lives! Forex is an evil scam!
This may sound like an exaggeration, but I have the video.
A lady from the french regulator, on television, was screaming "YOU HAVE TO FLEEEE FOREX DON'T YOU GET IT. R.U.N. A.W.A.Y!!!"
In the AMF report "Étude des résultats des investisseurs particuliers sur le trading de CFD et de Forex en France" they come up with scary stats.
Close to 90% of traders lost money in the 2009-2012 period, and even the more experienced ones that traded for the entire period (48 months) lost money at 87.56%.
They have a graph "losses by leverage" but nowhere on that graph is indicated leverage...
And of course there is no distinction between day gamblers and the rest, as their goal is to scare people away.
You cannot say I am biased towards defending Forex, you know how much I LOVE watching noobs break their teeth.
Honestly, this doc is pretty bad, and just pointless fearmongering with nothing to learn that we don't already know (90% lose money).
In a BOJ doc I saw that around 90% of individual "investors" were day gamblers. Explains why 90% lose money.
Ok so retail loses money when day trading I get it, but then how do institutional traders make money intraday? What is their secret?
Simple. They don't. That's the big secret.
There are other sets of data, like what FXCM did for us a few years ago, showing that traders with a risk to reward of 1:1 or more were greatly more profitable than bagholders with high winrate (3.12 times as much):
"Of the traders who traded 1:1 or higher risk-reward, 53% turned a profit; of those who didn't, 17% turned a profit."
Also they show 40% of their traders with 5:1 or less leverage make money, compared to 17% of the ones with > 25:1, and the ones that do make profit with this leverage probably only made a small deposit compared to their net worth.
For obvious reason you'll never hear from a broker the correlation between day gambling or not and profitability.
I heard from someone that worked at FXCM that they tried looking for an edge from their biggest losers, all that they found is they overtraded, this is again something you'll rarely hear from brokers for obvious reasons.
In the end all we can take out from all of this, is some win, most lose. There is at least some little improvement with experience.
"Intraday" Gamblers and leverage gamblers are gigantic losers that destroy the stats, as most of us I am sure already knew.
And as Locke and Mann (2000) show in a study "there is evidence that trading success is negatively related to the degree of loss realization aversion."
Might also want to add: Be a one trick! Warren Buffett is one big fat OTP that only value invest in blue chip US stocks in sectors he understands.
1 market. 1 strategy. And he is doing rather well unlike all the loud mouths with zero life medals that say he "misses out".