In the time that I’ve been participating on Babypips I’ve seen the idea that “failing traders create the opportunities for successful traders” many times. It always seemed off to me but I couldn’t really place why until recently.
If we look at the wikipedia page (yes I know that it’s a garbage resource), we find that forex market participants include- commercial companies, central banks, hedge funds, investment firms, non-bank forex companies, money transfer/remittance companies, currency transfer companies, and of course; retail traders.
It seems like a gross over-simplification to suggest that these entities are “failing” by engaging in their practices. If a Japanese company needs USD to make a purchase now; are they really failing or losing by getting that USD when they need it? Granted, most entities would try to get it ahead of time to ensure they could meet their business expenses but that’s not always an option depending on their strength.
It seems to me like the failing retail traders providing the opportunities is just a flat out myth. I couldn’t find specific numbers, so I could be wrong, but how can losing/failing retail traders possibly have that great of an impact on the markets compared to the massive number of companies, governments, professional investors, and financial entities that all have their fingers in the markets?
I very well could be wrong in this point of view which is why I’m creating this thread. Do you have any insight on this line of thinking?
I take your point. It’s actually rather interpretative, isn’t it, like so many of these things?
Relatively speaking, one could argue that they’re “losing” unless they happen to need it when their available exchange-rate is a particularly favourable one? I think that’s probably the kind of thing which people who subscribe to that perspective really mean, when they allude to such examples?
I hear you, but I think it’s probably an “exaggeration” rather than a “flat out myth”? :19:
I don’t think they can, really.
I think it’s perhaps true that [I]well[/I] over 95% of amateur/retail forex traders lose money over the long term, though, and [B]if[/B] that’s so (which of course I can’t prove), then you can kind of understand people making points like that?
I suspect that it’s more of a cross between “exaggeration” and “over-simplification”, rather than being “wrong”, [I]per se[/I]? :5:
That seems pretty likely, Lexys. I guess it really depends on how we define many of these ambiguous terms in relation to what is going on in the market.
They are losing more likely than not. I believe this type of players are the biggest losers, because they typically have to buy when price is high and sell when price is low… and that is because market predicted (and pushed price to that direction) when they will need to buy or sell…
If the Japanese company’s source of profit is outside the FX market, I don’t think they are “losing” since it’s no longer zero-sum. The company will pay a premium on the forex market, but then use those exchanged funds to generate greater profit outside forex.
I understand retail traders make up to 10% of the forex market. Assume the daily turnover is $1 trillion. Lets be really conservative and assume that 1% of daily turnover is from retail traders, which would be $1b. Suppose 90% of retail traders lose, then retail traders leave $900m on the table every single day for other traders to take. That’s over $200 billion per year if my maths is correct. That sounds a lot. Anyone who can get a slice of this will be extremely rich.
If retail traders make up 10% of daily turnover instead of 1%, then that numbers becomes $2 trillion per year(!).:53:
Well if retail traders make up 10% of the market. Actual turn over in the market is about $4 trillion a day (according to Wikipedia). So yeah that’s still a healthy chunk but still doesn’t seem like it’s enough to actually be the primary drivers. I suppose they could be on lesser trader pairs maybe.