What Percentage of New Traders Fail? (Part 4)

Today 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.

—————————

• 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…