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Our slogan is “Own Trading Without Right Training Is A Fool’s Errand, Fully Educate Yourself Or Leverage Other’s Expertise“, which is our way to improve people’ financial literacy & achieve better economic life, and from this view point we support OECD’s effort on financial education & consumer protection;
- 1. Forex Trading Harsh Reality
- 2. Forex Trading – 3 Passive Investments
- 3. Forex Trading Harsh Facts Again – Why Most Traders Lose Money
- 4. Forex Passive Trading Summary
- 5. Passive Trading Appendix
Forex Trading Harsh Reality
95% Of All Traders Fail
Given the increasing amount of on-line brokers, there has been a large number of individual traders in Stock or more in Forex market.
Bear it in mind that Forex (spot forex market) is a Zero Sum Game, actually it’s a negative sum game by taking brokerage‘ mark-up spread / commission. Therefore, it’s a natural consequence that very skilled trader (means who committed strong efforts to go through proper training) & institutional trader possessing “information advantage” beat the average & inexperienced retail traders. So, we can describe this situation as “Institutional Traders are Casino (House) whereas Retail Traders are Gamblers”. Given the House Edge, the Gamblers Can’t Beat the Casino.
With all that said, 95% of all traders fail is the trading related statistic often found in the internet and reportedly 80% of all day traders quit within the first two years. For more specific data, go to the Forex Harsh Facts Again later in this article.
The Loss Accounts in Forex Brokers
Then, let’s see the hard facts related to the losing accounts based on the officially published numbers as follows;
With the new European regulations that came into effect from August 1, 2018, brokers are required to display clearly on their marketing message what is the percentage of their clients that lose money. For example: “75% of retail investor accounts lose money when trading CFDs with this provider.”
31 CFD brokers were surveyed overall and here are the results:
It turns out that the losing account percentage varies from 65% to 89%. And the average percentage of losing accounts is 77%.
Here are the Top5 brokers with the highest percentages of losing investor accounts:
It might be that these brokers attract the least experienced traders and don’t offer them enough learning and training tools.96% of forex traders lose money? The myth has been busted!
The above results are based on both skilled / institutional traders and retail traders, so we assume it could be close to the 95% loss when it comes to only among retail traders.
Equity Curve To Become Seasoned Trader
The below graph shows a typical equity curve during the first decade of a currency trader, and that 80% traders quite at the stage of Loss of Confidence and Money.
Importantly you have to spend further years of hard learning & cost (both time & money) until you can see a sign of decent profit. I know most of you don’t have such time, therefore we will not suggest risky uncertain self-trading, but focus on making the best use of Top Traders’ Ability.
However, it’s widely believed that over 97% of on-line programs offering high-yield returns in pooled fund structure are scams. They disguise and tantalize you with easy profit. You should never mistake them for good income opportunities. It’s essential to stay away from any schemes you leave your money to other people’ entire control. You need to focus on the schemes allowing you to set your money 100% under your own control.
Forex Trading – 3 Passive Investments
We share the below 3 Passive & Safe Methods, see why these methods are the most practical & safest; Needles to say, the hardest part is finding the best traders.
We provide you with the concrete method of identifying the most appropriate traders for you.
Social trading is built on the idea that the collective wisdom of thousands of traders is better than the wisdom of one – eToro & ZuluTrade are said to be the industry best social trading platforms (see our eToro full review & Zulutrade full review). By connecting traders from all over the world into a network and sharing their views and trades real-time, investors can use that information to make social rather than fundamental or technical trading decisions. Now, it has been advanced into COPY TRADING. Simply put, social trading platform allows you to automatically copy the trades in your account from the traders you decide to follow with virtually No Cost.
The Brokerage Statistics
The above source also highlights;
As you can see in the image above, eToro stands out from the crowd with the lowest percentage of losing accounts. 65% losing accounts means that 35% of eToro users are profitable. That is 3 times more than the worst performing brokers and almost 9 times more than the folk legend predicted.
What could be the reason behind the high profitability rate of eToro? The main difference of eToro from other trading providers is the possibility to connect with other traders, discuss trading strategies, and use their patented CopyTrader™ technology to automatically copy the trades of successful traders. Apparently, this actually works!96% of forex traders lose money? The myth has been busted!
PAMM – Percentage Allocation Management Module is a new technological solution in Managed Account (a money manager trades the foreign exchange market on a client’s behalf for a fee). It allows the money manager to trade on one trading platform to manage simultaneously unlimited quantity of managed accounts, which saves a lot of cost. However, all the PAMM providers are not necessarily food, see the warning broker in the above quick guide, currently the best PAMM broker seems to be FXOpen.
Anyhow, importantly, your money never leaves your hand but all are kept in your brokerage account under your own name. You just grant permission to the experienced traders to access to your account so as to trade on your behalf, and those traders can’t withdraw your money. However, it doesn’t mean your money is not at risk but in fact Forex trading is very high risk investment, the poor trader easily wipe out your money, so suggest you go through PAMM Investment Ultimate Guide – 7 Secrets To Find The Best Account.
A Forex robot or EA (Expert Advisor) is a piece of software that analyses the market based on the settings entered by the user. In other words, the user does not need to make any trading decisions. Profitable Forex traders usually buy and sell currencies throughout the day, thus a Forex trading robot can be extremely valuable because the software will manage all your trades in every way from start to finish and can be carried out even while you’re sleeping. In case you are not familiar with Forex EA, suggest you go through Forex Robot For Dummies – 5 Essential Things You Should Know First
Forex Trading Harsh Facts Again – Why Most Traders Lose Money
Excuse me for repeating myself, it’s very difficult for retail traders to win unless they have right commitment & training, let me provide you with its rationale by quoting “Scientist Discovered Why Most Traders Lose Money – 24 Surprising Statistics” as follows;
24 Surprising Statistics
“95% of all traders fail” is the most commonly used trading related statistic around the internet. But no research paper exists that proves this number right. Research even suggests that the actual figure is much, much higher. In the following article we’ll show you 24 very surprising statistics economic scientists discovered by analyzing actual broker data and the performance of traders. Some explain very well why most traders lose money.
1. 80% of all day traders quit within the first two years. 1
2. Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain. 1
3. Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.2
4. The average individual investor under performs a market index by 1.5% per year. Active traders under perform by 6.5% annually. 3
5. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees. 1
6. Traders with up to a 10 years negative track record continue to trade. This suggest that day traders even continue to trade when they receive a negative signal regarding their ability. 1
7. Profitable day traders make up a small proportion of all traders – 1.6% in the average year.However, these day traders are very active – accounting for 12% of all day trading activity. 1
8. Among all traders, profitable traders increase their trading more than unprofitable day traders. 1
9. Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income. 4
10. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios. 4
11. Men trade more than women. And unmarried men trade more than married men. 5
12. Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features. 5
13. Within each income group, gamblers under perform non-gamblers. 4
14. Investors tend to sell winning investments while holding on to their losing investments. 6
15. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002. 7
16. During periods with unusually large lottery jackpot, individual investor trading declines. 8
17. Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss. 9
18. An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks. 10
19. Individual investors trade more actively when their most recent trades were successful.11
20. Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.1
21. The average day trader loses money by a considerable margin after adjusting for transaction costs.
22. [In Taiwan] the losses of individual investors are about 2% of GDP.
23. Investors overweight stocks in the industry in which they are employed.
24. Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.
Conclusion: Why Most Traders Lose Money Is Not Surprising Anymore
After going over these 24 statistics it’s very obvious to tell why traders fail. More often than not trading decisions are not based on sound research or tested trading methods, but on emotions, the need for entertainment and the hope to make a million dollars in your underwear. What traders always forget is that trading is a profession and requires skills that need to be developed over years. Therefore, be mindful about your trading decisions and the view you have on trading. Don’t expect to be a millionaire by the end of the year, but keep in mind the possibilities trading online has.
– 1Barber, Lee, Odean (2010): Do Day Traders Rationally Learn About Their Ability?
– 2Odean (1998): Volume, volatility, price, and profit when all traders are above average
– 3Barber, & Odean (2000): Trading is hazardous to your wealth: The common stock investment performance of individual investors
– 4 Kumar: Who Gambles In The Stock Market?
– 5 Barber, Odean (2001): Boys will be boys: Gender, overconfidence, and common stock investment
– 6Calvet, L. E., Campbell, J., & Sodini P. (2009). Fight or flight? Portfolio rebalancing by individual investors.
–7Barber, B. M., Lee, Y., Liu, Y., & Odean, T. (2009). Just how much do individual investors lose by trading?
– 8Gao, X., & Lin, T. (2011). Do individual investors trade stocks as gambling? Evidence from repeated natural experiments
– 9Strahilevitz, M., Odean, T., & Barber, B. (2011). Once burned, twice shy: How naïve learning, counterfactuals, and regret affect the repurchase of stocks previously sol.
– 10Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention
– 11De, S., Gondhi, N. R. & Pochiraju, B. (2010). Does sign matter more than size? An investigation into the source of investor overconfidence
Forex Passive Trading Summary
As explained in the above conclusion, human emotions from my perspective especially fear and greed are the biggest obstacles to successful trading. Fear becomes an irrational force when it prevents the trader from taking required trades or hesitating too long, in particular after having suffered a losing trade, or it prevents a trader from closing a bad trade with a loss (simple Behavioral Economics).
Oppositely, Greed causes traders to make random trades, or hold on to positions longer than their trading system dictates. Humans are also plagued with ego and bias, seeing what they want to see from the chart and indicators, looking for confirmation for their hunches, and unable to see things critically and objectively.
So long as there is real money at stake it is very difficult for a human to overcome these negative emotions and biases.
Only Machine & Very Skilled Traders can solve the problems and unless you devote yourself into training to become a Skilled Trader, suggest take the 3 Passive Investment to make realistic profits in Forex Trading.
Passive Trading Appendix
Whichever the method (either Own Trading or Passive Trading) you finally decide to take, you always need an Online Forex Broker.
Not all Forex brokers nowadays are regulated by appropriate financial regulators in their countries. It’s important to pay attention to your broker’s regulatory status, as it’ll determine the level of security and protection of your investment.
However, don’t think that unregulated brokers should not be used. There are many Trusted Unregulated Brokers that intentionally being unregulated in order to provide better & more economical trading conditions, see some of them in Latest List Of Offshore Forex Brokers Accepting US Citizens & Reasons Why;
Forex Regulation & Forex Regulatory Bodies By Jurisdiction
Anyhow, we are listing the Regulators for Forex Trading in each countries for your reference;
UK / Europe
Anguilla: Anguilla Financial Services Commission
Antigua: Easrnte Caribbean Securities Regulatory Commission (ECSRC)
Australia: Australian Securities and Investment Commission (ASIC)
Azerbaijan: State Committee for Securities (Azerbaijan)
Belgium: The Financial Services and Markets Authority
Bulgaria: Financial Supervision Commission of Bulgaria (FSC Bulgaria)
Croatia: Croatian Financial Services Supervisory Agency (CFSSA)
Cyprus: Cyprus Securities and Exchange Commission (CySEC)
Czech Republic: Czech National Bank (CNB)
Denmark: Danish Financial Supervisory Authority (Danish FSA)
Estonia: The Financial Supervision Authority (FINANTSINSPEKTSIOON)
Finland: FIN-FSA in Finland
France: Autorite des marches financiers (AMF)
Germany: Federal Financial Supervisory Authority (BaFin)
Greece: The Hellenic Capital Market Commission (HCMC)
Hungary: Hungarian FSA (HFSA)
Iceland: The Financial Supervisory Authority (FME)
Ireland: Central Bank of Ireland
Isle of Man: The Financial Supervision Commission (FSC)
Italy: Commissione Nazionale per le Società e la Borsa (CONSOB)
Latvia: The Financial and Capital Market Commission (FKTK)
Lithuania: The Lithuanian Securities Commission, Bank of Lithuania
Luxembourg: Commission de Surveillance du Secteur Financier (CSSF)
Liechtenstein: The Financial Market Authority Liechtenstein (FMA)
Malta: Malta Financial Services Authority (FSA in Malta)
Norway: The Financial Supervisory Authority of Norway
Poland: Polish Financial Supervision Authority (PFSA)
Portugal: Comissão do Mercado de Valores Mobiliários (CMVM)
Romania: Romanian National Securities Commission (C.N.V.M.)
Russia: FFMS in Russia (FCFR)
Slovakia: National Bank of Slovakia (NBS)
Sweden: Swedish Financial Supervisory Authority (Swedish FSA)
Switzerland: Swiss Financial Market Supervisory Authority (FINMA)
United Kingdom: The Financial Conduct Authority (FCA)
Africa / Middle East / Persian Gulf
Dubai, UAE: Dubai Financial Services Authority (DFSA)
Israel: The Israel Securities Authority (ISA)
Kenya: Capital Markets Authority (CMA)
Kuwait: Ministry of Commerce and Industry in Kuwait
Lebanon: Banque Du Liban
Nigeria: Securities & Exchange Commission Nigeria
Seychelles: Seychelles Financial Services Authority (FSA Seychelles)
Tanzania: The Capital Markets and Securities Authority (CMSA)
Turkey: Capital Markets Board – SPK
Vanuatu: Vanuatu Financial Services Commission (FSC)
Asia / Pacific
Bangladesh: Securities and Exchange Commission (SEC)
China: China Securities Regulatory Commission (CSRC)
Hong Kong: Securities and Futures Commission (SFC)
India: Securities and Exchange Board of India (SEBI)
Indonesia: Commodidity Futures Trade Regulatory Agency (CoFTRA)
Japan: Financial Services Agency of Japan (FSA Japan)
Malaysia: Securities Commission Malaysia
Mauritius: Financial Services Commission of Mauritius (FSC Mauritius)
New Zealand (limited regulation): Financial Markets Authority (FMA)
Pakistan: Securities and Exchange Commission of Pakistan (SECP)
Philippines: Securities and Exchange Commission Philippines
Singapore: Monetary Authority of Singapore (MAS)
South Korea: Financial Supervisory Commission
Sri Lanka: Securities and Exchange Commission of Sri Lanka
Thailand: Securities and Exchange Commission, Thailand
Canada:Investment Industry Regulatory Organization of Canada (IIROC)
Commodities and Futures Trading Commission (CFTC)
Financial Industry Regulatory Authority (FINRA)
National Futures Association (NFA)
Central America / Caribbean
Belize: International Financial Services Commission (IFSC)
British Virgin Islands: BVI Financial Services Commission (FSC of BVI)
Cayman Island: The Cayman Islands Monetary Authority (CIMA)
Hope these will be of some help to start selecting the right Forex Brokerage.
Global Extra Money (GEM) – Publisher