Interbank FX Reveal Most Traders Lose Money
As we pointed out recently, the new CFTC regulations require all US spot forex brokers to use a much longer risk disclosure statement from October 18th 2010. As part of that risk disclosure:
The final rules retain the requirement for RFEDs and FCMs that engage in retail forex transactions to disclose on a quarterly basis the percentage of non-discretionary accounts that realized a profit and to keep and make available records of that calculation.
Although it is not yet displayed on their website, Interbank FX have already emailed their existing clients details of their newly revised risk disclosure statement, including those profitability numbers. Here they are:
Quarterly Report % Profitable % Unprofitable Total Non-Discretionary Accounts
Sep - Dec, 2009 33% 67% 17,940
Jan - March, 2010 28% 72% 17,442
April - June, 2010 27% 73% 16,122
July - Sep, 2010 28% 72% 18,597
Note that the last column doesn't include all IBFX's customers. A "non-discretionary" account is defined as one that is under the sole control of the owner so managed accounts are not included, and accounts that didn't trade at all in any particular quarter are not included either.
Note also that it would be foolish to assume that the same traders are profitable in each quarter. Here at the Trading Gurus we do have some experience at calculating randomness. Here's how it works.
To a first approximation, if trading forex involves no skill and is in fact random, then the percentage of Interbank FX's customers who have sole control of their own accounts who are profitable for a year is 33% of 28% of 27% of 28%, which works out to be rather less than 1%.
Note in conclusion that to a first approximation if you toss a coin four times in a row the chances of getting four tails in succession is 50% of 50% of 50% of 50%, which works out to be a bit more than 6%.
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Comments on Interbank FX Reveal Most Traders Lose Money
the least you could do is fix 2009 to 2010, they made a mistake, you don't need to repeat it
Hello again None,
Thanks for the suggestion. I have now amended the post to incorporate what I assume are the correct dates.
Jim
As they omit inactive accounts, the actual figure could be more like 85%-90%. I'm curious to see the figures published by other brokers, and what methodologies they use…
Hi Yohay,
I am extremely curious also, but the deadline is fast approaching. We won't have long to wait…
Jim
You make money if you understand the game! Trading is about having a system that is consistent with market movements. As we all know random walk is all dead!
To a first approximation, if trading forex involves no skill and is in fact random, then the percentage of Interbank FX's customers who have sole control of their own accounts who are profitable for a year is 33% of 28% of 27% of 28%, which works out to be rather less than 1%.
…this fails to take into account the margin of profitability. 1% could be a gross understatement if those that are profitable are very profitable in any single quarter.
Hi Prune (if I may call you that!),
I did say "to a first approximation" remember. My own experience suggests trading forex is not entirely random. I personally have severe reservations about treating the profitability of individual traders as being normally distributed.
Mind you I also have severe reservations about 25% or more of IBFX's customers being profitable over a full year!
Jim