Why do 95- 98% of retail traders fail

This is a discussion on Why do 95- 98% of retail traders fail within the Indices forums, part of the Markets category; Originally Posted by keithh if you know it or not a survey carried out by FXCM concluded that 95 - ...

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Old Jun 26, 2014, 12:12am   #9
 
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Originally Posted by keithh View Post
if you know it or not a survey carried out by FXCM concluded that 95 - 98% of retail traders fail. so why is this? So how do you become one of the select few to succeed?
Hi Keith,

I see that 95 - 98% figure mentioned a lot on the forums, but without any real supporting evidence. Some have mistakenly attributed those percentages to one of our surveys, but it's not true. The real findings from the DailyFX Profitability Studies are as follows:
"Research shows that the amount of capital in your trading account can affect your profitability."

Click the image to open in full size.
The same studies show that FXCM client accounts with a balance of $10,000 or more had a profitability rate of 44.09%. The data is in line with quarterly reports that US brokers have to file with the CFTC which show that roughly 30% of retail traders are profitable while over 40% of retail traders are profitable at brokers that have a $10,000 account opening minimum.

Why the strong correlation between account balance and profitability?
Some traders with larger account balances might be more experienced/sophisticated and thus more confident in their trading strategy to be able to take larger positions. Other traders with larger account balances might have gotten to that point by growing their accounts to that size from smaller balances.

Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?
The DailyFX researchers believe there is!

"What we have found out through the analysis of thousands of trading accounts is that traders with larger account balances tend to be profitable on a higher percentage of trades. We feel this is a result of the EFFECTIVE LEVERAGE used in the trading account.

Click the image to open in full size.

"Traders with at least $5,000 of capital tend to utilize more conservative amounts of leverage. Traders should look to use an effective leverage of 10-to-1 or less."

So to answer your question, if you want to increase your chances of becoming one of the profitable 30% then consider limiting your leverage to 10:1 even though you have the ability to use much more. An analogy would be that if you want to increase your chances of reaching your destination safely then stick to the speed limit even though your car is capable of going 200 kph.

Last edited by Jason Rogers; Jun 26, 2014 at 4:14pm. Reason: fixed typos
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Old Jun 26, 2014, 7:24am   #10
 
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FX may be a zero sum game where 95% of traders lose, but index trading most certainly is not! Come over to the dark side where everyone can make money.
Dont believe me just look at a chart of your favoured currency pair over time, if its horizontal on a 20 year span your going to lose money its you vs 'them'. Indexes have a bias, they go UP, new money comes in each month, just compare GBP/USD to the Dow or FTSE.

In the poker game analogy its 10 people against each other with one winner in FX. With indexes some pension fund comes along after each hand and puts extra chips into the winning pot. Even if everyone wins one pot you all come out winning.

As to the comment above
"...Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?..." The DailyFX researchers believe there is!
Nothing personal but trading FX is like entering a turd in a beauty contest, your going to lose. However FXCM and the like will happily take your money and polish your turd for you.

Good luck trading Forex, your going to need it, oh wait a minute luck is for gamblers!
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Old Jun 26, 2014, 8:11am   #11
 
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Come over to the dark side

something i'm in the process of doing
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Old Jun 26, 2014, 8:12am   #12
Joined Jun 2006
Fx

keithh started this thread I don't trade FX either its the DAX and FTSE for me generally in the morning between 8 and 12.
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Old Jun 26, 2014, 8:27am   #13
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keithh started this thread Hi All

good info here I agree with the comments. so we have established a lot of areas as to why retail traders fail. One mentioned is and if I can simplify it to lack of professionalism or in other words trading as BUISNESS.

developing a trading plan is a key ingredient

what to trade, when to trade, position size, risk profile and the psychology of trading and as mentioned sticking to it .

What to trade a starter for 10

Depends on the individual and what they have set a goal to achieve, these days you can trade anything, Fx pairs, indices, commodities, shares, bonds etc, even binaries? the choice is massive, there is also a direct correlation as to the time you have to devote to trading. intraday, end of day,

the choice of what to trade and when to trade will have a direct effect on what size of bank you will need in order to be successful. for example an intraday trader can start with a smaller bank than an end of day trader,

in essence choose a market that fits with your time commitment, you cannot be an intraday trader on the European indices if you can only trade in the evening despite what brokers offer as a 24 hr index, the volume just isn't there. but you can be an end of day trader.

my last put for know before I hand over to you guys is choose a market that you some understanding of. if your into FX don't pick some far out pair kike ZAR/ JPY if you have no idea what it is and how it performs.
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Old Jun 26, 2014, 3:31pm   #14
Joined Jun 2014
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Originally Posted by postman View Post
FX may be a zero sum game where 95% of traders lose, but index trading most certainly is not! Come over to the dark side where everyone can make money.
Dont believe me just look at a chart of your favoured currency pair over time, if its horizontal on a 20 year span your going to lose money its you vs 'them'. Indexes have a bias, they go UP, new money comes in each month, just compare GBP/USD to the Dow or FTSE.

In the poker game analogy its 10 people against each other with one winner in FX. With indexes some pension fund comes along after each hand and puts extra chips into the winning pot. Even if everyone wins one pot you all come out winning.

As to the comment above
"...Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?..." The DailyFX researchers believe there is!
Nothing personal but trading FX is like entering a turd in a beauty contest, your going to lose. However FXCM and the like will happily take your money and polish your turd for you.

Good luck trading Forex, your going to need it, oh wait a minute luck is for gamblers!
I (sort of) agree. I believe the reason why indexes are easier to trade than currencies is because the market is less competitive. Most of the money driving the FTSE is the likes of hedge funds buying shares, especially when there is one of those minor corrections that happens every week or so. Currencies are constantly being exchanged one into the other by traders, large financial institutions and even central banks all trying to determine their value relative to the USD.
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Old Jun 29, 2014, 3:45pm   #15
 
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Joined Dec 2009
Quote:
Originally Posted by Jason Rogers View Post
Hi Keith,

I see that 95 - 98% figure mentioned a lot on the forums, but without any real supporting evidence. Some have mistakenly attributed those percentages to one of our surveys, but it's not true. The real findings from the DailyFX Profitability Studies are as follows:
"Research shows that the amount of capital in your trading account can affect your profitability."

Click the image to open in full size.
The same studies show that FXCM client accounts with a balance of $10,000 or more had a profitability rate of 44.09%. The data is in line with quarterly reports that US brokers have to file with the CFTC which show that roughly 30% of retail traders are profitable while over 40% of retail traders are profitable at brokers that have a $10,000 account opening minimum.

Why the strong correlation between account balance and profitability?
Some traders with larger account balances might be more experienced/sophisticated and thus more confident in their trading strategy to be able to take larger positions. Other traders with larger account balances might have gotten to that point by growing their accounts to that size from smaller balances.

Still is their anything useful new traders can learn from profitable traders, even if they don't have a large balance to start?
The DailyFX researchers believe there is!

"What we have found out through the analysis of thousands of trading accounts is that traders with larger account balances tend to be profitable on a higher percentage of trades. We feel this is a result of the EFFECTIVE LEVERAGE used in the trading account.

Click the image to open in full size.

"Traders with at least $5,000 of capital tend to utilize more conservative amounts of leverage. Traders should look to use an effective leverage of 10-to-1 or less."

So to answer your question, if you want to increase your chances of becoming one of the profitable 30% then consider limiting your leverage to 10:1 even though you have the ability to use much more. An analogy would be that if you want to increase your chances of reaching your destination safely then stick to the speed limit even though your car is capable of going 200 kph.
There you go - put more money in your bucket shop account and you'll be more successful!
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Old Jun 29, 2014, 6:06pm   #16
Joined Jun 2014
"The same studies show that FXCM client accounts with a balance of $10,000 or more had a profitability rate of 44.09%. The data is in line with quarterly reports that US brokers have to file with the CFTC which show that roughly 30% of retail traders are profitable while over 40% of retail traders are profitable at brokers that have a $10,000 account opening minimum."

It's possible that 30% are successful over a 3 month period of time. That just means that 70% have already failed and the majority of the remaining 30% haven't failed yet.

Over a longer period of time I think the failure rate is more likely to be around 95%
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