Forex trader success rates - some real data

[Rhody Trader]

I've extended the research a bit in a new post by looking at traders rather than accounts. The interesting bit is that the profitability percentages drop noticeably when comparing the "trader" figures to the "accounts" figures. This suggests profitable traders are more likely to run multiple accounts (or sub-accounts) than are non-profitable traders, which also means the broker-reported profitability figures likely are overstated.

 

[0007]

As part of my PhD research (yes, I'm doing a doctorate focused on trading) I am looking into retail forex trader profitability. Since the whole question of whether 95% of traders actually fail or not is such a hot button topic, I figured I would take that on as a bit of a side project and share what I find with folks as I work through the numbers. I've posted some initial results on my blog in the post Starting to detail forex profitability data. As the title implies, it is just a start at this stage. There's a lot of data and a lot of ways to slice and dice it. Still, comments are very welcome.

I will post further results as I am able to do additional analysis.

John, it's good to see some quality open research being done on this subject. Am I right in thinking that you will be considering Forex only? I would be interested to know if there is any evidence to show differences in the results of Forex and non-Forex traders. My own experience is that I've never been really able to get on with trading Forex successfully, yet as the same person & same psychology I'm very happy with my results trading USA stocks.

Will your researches extend to this area?

 

[Rhody Trader]

0007 - You're right. I will be focused on forex-only results. It has the advantage of looking at individual speculative activity in a much more direct and specific way than can be said of stocks and other markets where there are more varied motivations for participation. There will definitely be overlap in certain aspects of trading between forex and other markets (think Behavioral Finance), but I won't be looking at the actual performance of non-forex traders - at least not for the purposes of my current PhD research. Maybe later down the line.

 

[The Artist]

Dear Rhody Trader,

First of all good luck with your endeavour :clap: .

I had one question which relates to the switch away from an account-based analysis towards a trader-based analysis.
Retail forex has a fairly high penetration of automated trading vendors, aka "bots". As such, by focusing on traders, it might be difficult with the available data to identify duplicate accounts and isolate all those thousands of retail investors who have fallen and continue to fall prey to unscrupulous "bots", creating a selection bias. How do you plan to account for that?

It really opens up the more general topic of further mitigating the alleged "95%" figure by focusing on "proprietary" traders and "execution-only" traders (those who use FX bots, managed accounts services, forex signals, etc.) which you sort of touch upon in your most recent post.
The data can probably not be manipulated in order to assess the performance of both groups, yet to test the hypothesis that the first group would outperform the second would be quite interesting. If anything, if you can at least identify somehow traders who just replicate, regardless of the method, the results of that dummy variable could be very useful.

 

[Rhody Trader]

The data set I have includes a considerable number of automated "copy" trades which are flagged as such. The results I have been posting, though, exclude them since they are not directed or executed by the account-holders themselves. My PhD work is focused on individual trader decision-making, and obviously copy trades don't fit that bill.