What Percentage of New Traders Fail? (Part 4)
Posted by Mark on June 16, 2020 at 07:39 | Last modified: May 16, 2020 16:22Today I continue with excerpts from a Forex website forum discussion in 2013. The initial post, which tries to rebuke traditional wisdom, is Post #1 here. Forum content is unscientific and open to scrutiny. Do your own due diligence and buyer beware.
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• Post #33, Nat:
> The brokerage data exaggerate the number of profitable traders.
>
> Say I start a new brokerage firm, and I sign up 100 new people
> every year and 95% fail and quit in the first year, the
> brokerage stats would be as follows:
>
> Year 1 – 100 new traders of which 5 are profitable (95% fail)
> = 5 profitable traders out of 100 or 5% profitable
>
> Year 2 – 100 new traders of which 5 are profitable (95% fail)
> plus 5 profitable traders from year 1 who are still on the
> firms books = 10 profitable out of 105 or 9.5% profitable
>
> Year 3 – 100 new traders of which 5 are profitable (95% fail)
> plus 5 profitable traders from year 1 and 5 from year 2
> = 15 profitable out of 110 or 13.6% profitable
>
> You also need to consider that profitable traders tend to have
> multiple accounts to offset the risk of losing all of their
> capital should their broker go bankrupt, or to take advantage
> of tighter spreads on different instruments. Losing traders
> tend to only have one account, therefore one profitable trader
> may be counted 3 or 4 times in these statistics depending on
> how many accounts they have.
• Post #39, King:
> I don’t believe the oft-quoted figure of 99%, 95% or 90% of
> new traders failing. You’re not designing a rocket that will
> travel to Mars.
This post makes me laugh now. First, as mentioned at the end of Part 3, I wonder if King has read the Brazilian day trading study? Second, as discussed in paragraphs 3 – 4 here, I think finding a viable trading system is extremely difficult. It may indeed be rocket science.
• Post #40, Nabi:
> The figures of profitable traders provided by the brokers do
> not account for the number of accounts being closed and opened.
>
> I read an article back in 2009 about IG index or IG markets…
> they had on average 50,000 accounts, year on year, which about
> 30% of them were profitable. The stand out figure I remember
> was that the number of new accounts opened per year 60,000.
> Whilst I cannot remember the exact figures I can clearly
> remember that the number of new accounts per year was
> greater than the average number of accounts held. If I recall
> correctly, the average account lifespan was about 3 months.
>
> …it still means the figures provided by brokers are worthless
> without the number of accounts open and closed within the year.
• Post #43, Trac:
> 51% profitable trades does not mean 51% traders are profitable.
>
> Also, check this DailyFX (FXCM) article… let’s use EUR/USD
> as an example. We know that EUR/USD trades were profitable 59%
> of the time, but trader losses on EUR/USD were an average of
> 127 pips while profits were only an average of 65 pips. While
> traders were correct more than half the time, they lost
> nearly twice as much on their losing trades as they won on
> winning trades losing money overall.
• Post #45, Kat:
> First of all, it says nothing about consistent profitability,
> because those 30% profitable in Q1 don’t have to be the same
> people in Q2, so 35% in Q2 can be made of different people
> than those 30% in Q1, etc.
>
> So you should accept that there is MAX 5% of consistently
> profitable traders making money every month (or quarter).
>
> And if you think that it is not true you probably still did
> not figure out how fking difficult this business is.
Here’s someone who clearly would believe the day trading study mentioned above.
To be continued…
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