" I’ve been involved in the forex trading industry for several years now, and during that time I have been constantly reminded of the fact that only around 5% of people actually make money from forex trading. The other 95% obviously end up losing money in the long run. However the current disclosure laws in the US mean that all of the forex brokers that are based there have to reveal how many of their customer accounts are actually profitable, and the results are very surprising.
It would appear that the 5% winners 95% losers story is a complete myth because if you look at the full results as reported by the Forex Magnates site, you can see that the number of profitable accounts was on average much higher than 5%.
The lowest figure was from IG Markets who reported that just 20% of their accounts were profitable for the last quarter, whilst the highest was from Oanda who incredibly reported that 51% of their traders had profitable accounts. Anyway the point is that the average figure was between 20% and 30%, so this is significantly higher than the 5% figure that we often hear quoted.
This is a sign that there are a lot of people out there who are making some excellent profits from forex trading, and that it might not be as hard as many people are making out."
This is article by blogger who present himself as JamesW. I’d post a link to the original article, but I was in dilemma about if posting links to other websites is permitted.
You cannot necessary use the broker profitability data as indicative one way or the other that the 95% failure rate is right or wrong. All that broker stuff does is show a discrete interval of performance. It doesn’t tell you whether the same accounts are profitable from quarter to quarter. If it’s just a random 30% who make money each quarter (and keep in mind that could just be $0.01 in gains) - and I’m not saying that’s the case- you don’t have to go out too many quarters before you get to a likely loser rate near 95%.
What we properly need to see is how much persistence there is in performance for traders from period to period - which is something I’m working on.
I’m still under the great opinion that the majority of majority fail in this. They come into it with the wrong intentions. I can’t get over how many people think they can just up and quit their job and trade currency markets in a matter of months. The learning curve is incredibly steep to even develop yourself into becoming a consistently profitable trader. Most people simply do not have the mental psychology to endure it, and that is more evident by those that desire so much from it.
i think a lot of (failed)traders use that statistic as a scapegoat to exit the financial markets without feeling like a complete failure. also, i dont think any successful trader in history has ever taken such a statistic seriously, as i dont believe one gets far taking that statistic to heart. like i said in the other thread though, a lot of the losses most likely come from gamblers and wannabe cowboys.
im a newbie to the trading game, so i dont have much credibility lol however i think the same thing applies to life a lot of the time.
Entering market with expectations of becoming rich overnight is one of the factors why people lose trades, and end up with rage quit. Maybe that factor is the killer #1, together with high leverage and undercapitalized accounts.
you can check out traders profitability reports via forex magnates. Generally across the globe, 25% of traders make money or have profitable accounts. Some brokers have about 40% of their clients making money, which is on the high end.
But the 5% number is a complete myth not founded in stats, facts or reality.
There’s an awful lot of “one and done” type accounts that get opened, and blown up, only to never reopen again.
Do you think those numbers of 25, and 40% would look different if the total of accounts that were profitable vs the losing or even closed accounts were tallied up at the end of the year?
My thoughts are, those accounts that gain are a consistent number monthly. And because of their viability, that total gaining accounts number likely stays somewhat static. But the turnover on the losers even if they were 30% quarterly would skew the total loss percentage to a much higher number than the 60 to 75%.
I agree with Master Tang that its likely these statistics only focus on active accounts, rather than total accounts established over the course of a certain period. So the statistics can’t be trusted, however I do believe that the 5% profitable figure is a myth for the very reason that every trade has a 50% chance of been right. There are both buyers and sellers in this market so somebody has to be getting it right… the trick is getting it right more than half the time and staying consistent.
Yep, I’d agree with that (and also with what mastergunner said in reply to rhodytrader’s post.
A snapshot isn’t really expressive … what one would need are longer-term figures; obviously brokers aren’t too keen on releasing those, since in all probability they won’t look as favourable.
What interests me, rhody, is: how will you go about obtaining period-to-period figures?
Surely they, too, will only reflect a small segment of retail traders, i.e. those to whose statistics you have access?
And if you really get some meaningful numbers, will you post them here?
Lastly: personally I’d estimate the number of long-term profitable traders to be somewhere between 10% and 15%.
I think many manage to avoid losses, because they take money management seriously and have learned trading well enough (which is hard, granted, but not all that hard) to be profitable.
The catch here is that an ROI of 1% or 2% (ROI is always annual) may qualify as being ‘profitable’, but won’t do you much good, unless you’re running a 10m bucks account.
So, a trader can be profitable without actually making more money a month than he’ll need to buy his girlfriend a pizza and a coke (which is okay of course … free pizza is always fine :D).
The issue here, as with so many things, is ‘relation’.
Cheers,
P.
There are no secrets to success. It is the result of preparation, hard work, and learning from failure. (Colin Powell)
I would have to dissagree with he 50/50 thing as you would nevere get 50 people right and 50 wrong due to" spike outs" maybe 20 right and 80 wrong but not 50/50 .
I think the 95% is about the number of account blown on their first 3 months. That’s a complete different thing since it only includes new account - and for most - beginer accounts.
I’d be interested to see a statistic on profitable vs losing traders that is only from the demographic of educated traders (ie, complete baby pips school, continued further education through other means, traded demo for at least 6 months, had institutional training etc etc). I think taking any person who opens a 100 dollar account and blows it on two trades never to trade again and lumping them in with the actual traders who are properly capitalized and adhere to risk management strategies makes for a misleading figure. I don’t think anyone with the ability to open an account should necessarily be classified as a “trader” for the purpose of statistics. That’s probably an impossible figure to determine accurately though and part of the reason so many off the wall statistics are thrown around.
The ststistics are focused on the wrong set of criteria
You only have to spend a short amount of time casually browsing this & other likeminded boards to quickly realize that 95% of the numpties who regularly frequent them possess neither the emotional maturity/stability, the desired basic levels of intelligence/common sense or the financial capabilities necessary to make any kind of positive headway in this endeavour.
