What percentage of retail forex traders lose money over the long term?

The [I]Retail Forex Failure Rate[/I] question has been argued here and elsewhere for years.

Here’s a sample Babypips thread on this subject — 301 Moved Permanently

The French regulator [I]AMF[/I] has released the results of a study [B]of French traders,[/B] which concludes that —

— [B]over a 4-year period,[/B] the retail forex failure rate [B]in France[/B] was [B]89%.[/B]

[I]Forex Magnates[/I] has reported (briefly) on the AMF study. You can read their report here.

I’m trying to track down the original study.

Edit: Here’s another article on the same French study which says that the study covered a 5-year period. This article contains a link to the AMF study (in French). I haven’t found an English translation, yet.

I wonder what that failure rate would be if those traders used a stop loss; or money management program that would always protect their capital while at the same time slowly building it; or looked at trading from a long term view instead of one trade or one or two sessions; or tried to learn from making the same mistakes all the time or keeping their minds open to there is more than one way to approach trading.:33:

Myself, I never considered the failure rate as much as I considered what caused it.

looks pretty accurate to me and the reasons are:

  1. lack of education.
  2. +90% of website dedicated to FX are scams.
  3. unskilled people trying to educate “retail traders” is the most funny ( sadly) part of it.

Thank you Clint for this link.

I don’t have time to make a full translation of the pdf file, but as a french I can help a bit:

title: Study of the results of private investors on CFD and forex trading in France.

In part one, called methodology, they specify that despite they talk about customers, the data is more about accounts, because a good part of the data given by the brokers are identified by a client ID (with names hidden). Therefore they cannot count the exact numbers of people as some may have multiple account at different brokers. They consider this error small enough to be ignored.
They estimate the traders at the brokers interrogated represent 45% of forex retail traders (for France).
They warn about the fact that all brokers did not have all the data formated in the same way and that they were often unable to distinct how much money was involved in CFD and how much in forex. They estimate that a small portion of binary option results pollute the data from a few brokers. So the results are not for forex alone, but pretty much all kind of trading offered by brokers in France.

The data is from 2009 to 2013. Many brokers had data only for the last two years and in that case the data got discarded. One broker had data only for 2010-2013, but they still say the data is for 4 years, so I suppose they averaged the yearly results to put it back on 4 years.
They consider that, during this period, financial markets were healthy and that if the traders got bad results it cannot be explained by exceptional facts.

They counted 14799 customers active at these brokers, from who the data got compiled. ‘active’ means opening at least one trade on the account during the 4 years period.
yearly results: (losing traders %)
2009 84.2%
2010 84.2%
2011 83.8%
2012 84.2%
2013 83.3%
over the 4 years: 89.4%

average result: -10 887€ per customer
median result: -1843€ (half of the customers lost more than 1843€)
total 161 115 493 € lost, over 16 181 843 transactions.

on page 4, top chart: quantity of customers (here called frequency) / win or loss in €
on page 4, bottom chart: total quantity of money won or lost / win or loss in €
from these two graphs you can see for example on the last bar that only 121 people earned more than 24000€, and that these 121 people earned more than 10 300 000€ total.
From the first bar you see that 722 customers lost more than 50 000€, and these 722 people lost more than 102 000 000 in total.

They estimate that brokers commissions and spread can only be a reason for about 14.2% of these customers loss.

Then they give data from a smaller set of 1881 customers for who they had more complete, and identical information. (table 2 on page 5). About 85% of losers again. Because these clients were followed for the full 4 years (no turn-over) and because the % of losers stays at 85% over the 4 years, they conclude they did not get better at trading with time, there is no learning.

graphs on page 6 are made from the bigger data set (14799 customers).
top chart: part of population and average result / how many orders they made.
Basically you see most people made few orders and that only 4% of the population made more than 5000 orders. You also see that the people making more orders loose more money in average.
Bottom chart: same chart with the average volume of money exchanged instead of the number of orders made. You see that most people bet a low amount of money, and that the few who bet a lot of money lost a lot of money.

chart on page 7 is the same as the preceding one except the volume is not the average volume but the total volume traded.

Translation of the conclusion:

This study shows that trading CFD and forex is the origin of significant losses for a very large majority of private [traders], with an average rate of losing customers over 4 years superior to 89%.
The expectancy of loss is big (-10 900€) but fluctuates a lot depending on the provider observed (from -4500 to -13400€).

Besides, the study also showed that the investors who deal the most (in quantity of transactions as well as in average size of transactions, or accumulated volume) loose the most. The same is true for those who persist over the long-term, illustrating the absence of learning effect.

my comments:
The world “particulier” in french is the opposite of professional. That would mean the traders here are only traders who do not make a living from forex. However when they describe how they got the data from brokers and say that a good part is anonymous, they admit they have no idea if the accounts are owned by professional or amateurs.

What is sure is that they counted only 121 traders among the 14800 (less than 1%) gaining more than 24000€. The average profit for that category can be calculated at about 21000 € per year, Considering in France almost half of your income will be taken for taxes, it is pretty safe to say that if there are people among this retail traders who trade for a living, they are probably less than 50.

Extrapolating a bit more from the 45% figure given, that means there are about 30 000 retail traders in France, about 3000 among them are NOT loosing money, and less than a hundred among them who may be profitable enough to make a living from it.

Fantastic job translating, Orpexo! Thank you for the time and effort you put into this.

And thanks for your personal comments at the end.

All of it is much appreciated!

+1 and thanks to you Clint as well

Thinking about it, when I opened my account at my broker I was asked if it was as a private or for a company. Therefore it is very possible the brokers discarded all the professional retail traders and their 1 person business.

In France with the 40-50% tax taken from your income there are only two viable ways to be a retail traders if you earn a lot:

  • escape tax by being out of french territory for more than 6 month per year.
  • have another job that pays you more than trading, but it general that means you do not earn a lot from your trading. And you will still pay about 30% tax on you trading profit.
  • build up a one person company, a company that will pay a overpriced rent for the office in your house, it will pay you a overpowered computer, a mercedes, fancy suits, an occasional business dinner at the restaurant (with your wife), all these being totally necessary for you to do your business =|
    All these business expenses can be deducted from your taxable income.

All this to say I do not think professional retail traders are in that data.

Also my extrapolation on the 45% is probably wrong because they say the brokers interogated represent 45% of the french market. However they discarded a lot of data after, not sure how much. So there are probably more than 30 000 retail traders in France, but that doesn’t change the % of succesful ones.

Really good reading here. Thanks for the info guys :slight_smile:

I guess FOREX is akin to Robert The Bruce. If at first you don’t succeed, try try again!

Why Most Traders Lose Money and Why the Market Requires It

Thank you for the information provided. What is alarming though, is the number of traders really “making the grade”. Without a doubt, the question arises: Can we ever succeed without painstaking measures being put in place?

10 Traits Of A Successful Options Trader
Forex Trader Documentary and Interview - FX Viper from ForexSignals.com - YouTube

Hi

This implies that going against the sentiment index is good…!

Yep. I did some analysis on retail sentiment on my blog.

The statistical edge of trading against retail sentiment

The statistical edge of trading against retail sentiment - part 2

On almost all the currency pairs I examined, if you traded with retail sentiment, you would’ve lost pips.

The following tool from OANDA is very useful for research about retail sentiment and behaviour (Forex Historical Position Ratios)

Here’s a snapshot of the EURUSD over the last year, and the % of retail traders who went long or short. As you can see, as the EURUSD fell, the % of retail traders going long went UP!


I read that over 90% of traders fail and loose their account within the first 6 months of trading. Guess that should be placed to the fact that most traders are greedy and does have a good money management and trading system.