39% Of Forex Traders Are Profitable

[alayoua 5]

I hope you’re OK reader, after all that must have come as quite a shock. Now you’ve picked yourself up the floor, after reading the article title, which is a fact (well kinda), we’ll dwell on the subject at hand; why do so many lose at trading forex and what are the adjustments so many have to make in order to be in that top forty percent of winners?

 

OK, before we go any further let’s firstly deal with the 39% of winning traders quote. The fact comes as courtesy of forexmagnates in their redux lite version of a report covering the profitability and performance of USA based forex brokers. The leading figure was 39.1% client profitability from a broker who had circa 24,000 active accounts. There’s also other interesting snippets of information that are worth noting before we move on.

 

 

There was a steep fall in the number of accounts and activity levels in 2011 whilst the percentages of profitable traders increased. This could suggest a couple of interesting points, firstly are we collectively getting better at what we do? Or (and it’s not mutually exclusive) have a lot of ‘amateurs’ left the arena, gone back to the day job, leaving the numbers to be enhanced by the superior or more proficient traders? More importantly the number of brokers has shrunk, only the fittest of traders aided by most regulatory compliant firms will thrive.

 

* Number of forex accounts held with US forex brokers drops by more than 11,000 to all time low of 97,206

* Clients’ profitability is up 6.4% on average, second consecutive quarter that profitability is improvin

 

The US retail forex industry is now showing obvious signs of slow down, the number of non-discretionary retail forex accounts held with US based reporting brokers down to record 97,206, the lowest count reported since Q3 2010 when first such report was released. The extreme regulatory climate has made it extremely difficult for American brokers to attract new clients. However, out of the top ten forex clients listed the lowest recorded level of profitability was circa 32%.

 

It’s fascinating how many of us would receive a paradigm lightening bolt to our pre-conceptions when hit with the kind of figure that led this article. I’m not alone in taking ‘at face value’ some of the data and assumptions that come our way as forex traders. Instinctively I ‘knew’ that the unsubstantiated figure often hurled around trading forums; that only 10% of traders are profitable, was nonsense.

 

Having enquired at director level and read a comprehensive investors intelligence report, the reasonable figure for success was estimated at 20%, double the previous assumption, but 39% certainly took many by surprise the first time it was published, even more so that the top ten USA brokers have clients enjoying a 32% success rate. There is, however, a caveat, my twenty percent figure includes spread betters who could in theory be skewing the data due to being much worse traders (en masse) than pure play forex traders, a theory worth examining at a later date.

 

A question often raised by these type of success stats is “are a tiny percentage of successful traders distorting these figures?” But generally percentages, averages and the distribution of random data doesn’t work like that, and we should already know this being traders. If circa 40% of trades are profitable then the figure for the percentage of actual traders being profitable will be fairly close to that number.

 

In the first paragraph we posed the question why are so many traders unprofitable? Well armed with this new information I wonder if that assumption shouldn’t be examined in more detail. Firstly, out of the circa 97,000 live accounts held in the USA roughly one third are profitable, now not all of these account holders will be full time dedicated sole occupation forex traders, some accounts would be used as ‘punting’ accounts, folk who bet as opposed to trade (and we can save the obvious cerebral discussion on the difference for another time).

 

It’s impossible to gauge that breakdown of actual numbers of profitable traders from the information and data, but a figure above 50% would be a fairly safe bet and let’s just take our logic a stage further; in order to be full time, (for some time), the vast majority would have to be profitable, otherwise they’d simply give up the job. It’s interesting to note the further away we’re moving from this fantasy 10% figure the more we analyse a small piece of hard (audited) data.

 

There’s another aspect to this debate on success that’s also worth mentioning, perhaps supporting the view that FX is the best environment to trade in. If the wider trading success figure is closer to 20%, but the top ten USA FX brokers’ clients are all above 32%, then are we being delivered an obvious message there? If you want to enhance the probability of being a profitable trader then trade FX over and above equities, or indices and only consider using (dare I say it) an ECN/STP broker such as FXCC.

 

Here’s my own take on a more human level so to speak; I refuse to accept that anyone who has gone through my pain barriers over the past five years or so, who has gone to the extremes of discovery I realised was compulsory in order to become a consistently profitable forex trader, wouldn’t ultimately be successful and by successful I’d suggest a metric of taking a regular and reasonable salary or investment return of the forex market. And as I’ve stated on numerous occasions unless you attack our ‘forex challenge’ full time you’ll never ‘kick off the shoes’ and trade part time in a laid back fashion, that’s a luxury that only comes from experience.

 

Back to the question posed in the initial paragraph; “why do so many lose at trading forex and what are the adjustments so many have to make in order to be in that top forty percent of winners?” I’ll leave you with six reasons and please feel free to join in on the blog with your own suggestions or additions. Now I’m not about to ‘eulogise’ on the reasons and of provide solutions, it’s a straightforward list and there’s no riddle, the answers are there, the solution evident.

 

But firstly a recap, if close on forty percent of traders are successful then success as a profitable forex trader may be more in reach than you’d first envisaged. And that one figure, far higher than most would have anticipated, should be heralded as encouragement for fledgling traders.

[SIUYA 11]

If circa 40% of trades are profitable then the figure for the percentage of actual traders being profitable will be fairly close to that number.

 

 

so is it 40% of trades are profitable, or is it 39% (call it 40%) of traders/trading accounts profitable?

[Obsidian 10]

Seems natural selection works in trading as well

[henryduncan12 10]

I also have wish to come under 39% traders list. I think, the points you discussed here are good and will be helpful for becoming a successful forex trader.

[sidra 10]

Forex trading includes those markets that are available to an individual for the trading purpose like; future and option market and the Forex spot market. It's not easy to trade in any of these markets without getting expert knowledge; you are going to lose in another way if you know how its works, you are sure going to have high percentage.

 

But before going to trade and having a put or call, one has to know how Forex market actually works; where to exercise your put or call and where to withdraw.

[Cosa Nostra 10]

May be, may be - so 61 % is unsuccessfull!

[DbPhoenix 42]

Yes, as in so many other things. 1SD above the mean of a standard bell curve = 84%. And that's having any profit at all. You want better than that, shoot for 2SD, 97%. You wanna make a living? Try 3SD.

 

As to suggesting that Forex is the best market to trade in if one wants to be a successful trader, the logical fallacies in that argument are large enough to drive a Boeing 747 through.

[gianno 10]

It's not the same if you are profitable with 1% gain and 200% gain. Profitable must be measured against some normalized index. If you make $1 at the end of the year you have lost a lot of money actually.

[Galacticus 10]

Losers in FOREX (=scamming industry) are 99,9%

 

Only scammers provide larger %.

[SunTrader 10]

4% maybe. 40% no way. The (simple) math doesn't add up.

 

Where are all the profits coming from? Uncle Ben at the Fed.

[Ingot54 13]

My takeaway from this article is that the industry is under stress.

 

The dishonest brokers have largely felt the wrath of an industry

that was suffering, and demanded the impotent regulators clean it up.

 

There was a steep fall in the number of accounts and activity

levels in 2011 whilst the percentages of profitable traders increased.

More importantly the number of brokers has shrunk, only the fittest

of traders aided by most regulatory compliant firms will thrive.

 

* Number of forex accounts held with US forex brokers drops by

more than 11,000 to all time low of 97,206

* Clients’ profitability is up 6.4% on average, second consecutive

quarter that profitability is improving

 

The US retail forex industry is now showing obvious signs of slow

down, the number of non-discretionary retail forex accounts held

with US based reporting brokers down to record 97,206, the lowest

count reported since Q3 2010 when first such report was released.

It may well be that with the disappearance of dishonest brokers, profitability

might be returning to where it should have been for quite some time anyway.

 

And with the improvement in profitability, brokers come under even more stress -

at least those that behave like bucket shops. Those that are ECN's and have

STP should not be affected - in fact they pray for the longevity of their clients,

because of the fees and spreads generated for with each trade.

 

The extreme regulatory climate has made it extremely difficult for

American brokers to attract new clients.

Yep - they did such a good job of fleecing clients, that now almost everyone

has been warned away. Only those brokers who did the right thing are now

reaping those rewards - the loyalty of their grateful clientele.

 

To be candid, I am still a little wary of articles like this.

 

To say that profitability is now around 40% might breathe fresh life into the

struggling industry - if indeed it is struggling at all.

 

If traders think profitability is high these days, they may well be attracted back

to take a second shot at it. After all, no one thinks of themselves as being

'below average' do they?

 

Articles like this are the very best kind of advertisement brokers could hope for.

 

But firstly a recap, if close on forty percent of traders are successful then

success as a profitable forex trader may be more in reach than you’d

first envisaged. And that one figure, far higher than most would have

anticipated, should be heralded as encouragement for fledgling traders.

That is the punch line - right there.

 

The article is purely bait to encourage burned traders back into the industry.

 

I am struggling to believe the numbers. 39%? I think they are pulling our legs!

[DbPhoenix 42]

True. "Fledgling traders" should run from Forex as fast as they can.

[Ingot54 13]

True. "Fledgling traders" should run from Forex as fast as they can.

Not only fledgling traders - about 60% of "traders" should run.

 

I am about to do a runner myself, after 9 full years on 5th March, of doing this.

 

What people may not realise, is that even when you make the move from losing, to

profitability, it is still a VERY LONG WAY to self-sufficiency through the art of trading.

 

I began this quest through trading my very first equities trades, on 5th March 2004 ...

which just happened to be my birthday gift to myself, with the blessing of Mrs Ingot54.

 

It has turned out to be a curse.

 

9 years later, after much damage, I have decided it is really never going to replace my

income from my day job in the way I had hopes for at the outset.

 

I still have my health ... and my family, but not my friends and not my money.

 

I am giving up on live trading after having crossed the threshhold, because I still have

such a long way to go to actually make $80k/yr that I know without a doubt, that that

dog ain't gonna hunt.

 

I learned a lot - I learned how to trade.

 

But I didn't learn to "Trade for a Living."

 

I know only enough of the principles to get me over the line, but I have a hobby already

- I need an income.

 

So just to be able to say "39% of Traders are profitable" is just so much crap, in my

humble opinion. I have paid my dues, but I didn't get membership of that big club.

 

No one sold me the dream - it was a deliberate decision to enable me to move from

working in a stressful hospital position, to working in a care-free, work-from-home

situation, where with a bit of work every couple of days, my income would be easily

replaced.

 

Some did achieve this - congratulations sincerely to them.

 

Remember, you are not a trader until it says so on your IRS or Annual Income

Taxation Statement.

[DbPhoenix 42]

While the vendor who started this thread is probably wishing he hadn't, yes, saying that "'39% of Traders are profitable' is just so much crap". In fact, saying that 39% of traders are anything is just so much crap. Plus, nobody ever defines "profitable" or "successful", so whatever one might say on the subject is meaningless from the outset.

 

The distribution of "success" in this pretty much follows a standard distribution, with minimal success tending toward the mean and substantial success at the tail. Therefore, the majority of traders are going to break even. If one includes those from the bottom of the distribution who can't even do that, you've got about 80% who break even or worse.

 

We then get into the right tail, with about 18%, or 2SD from the mean who do pretty well. That brings us up to 98%, the remainder of whom actually make a living at it.

 

So if one believes that he is or can be part of that 2%, great. But those who take great comfort in some nonsense remark like 39% of traders are profitable should understand that that may mean no more than those traders can barely cover their commissions.

[sidra 10]

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