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-   -   Forex - A negative sum game for losers (https://www.forexfactory.com/showthread.php?t=651547)

HudithePfupf Mar 24, 2017 11:42am | Post# 1

Forex - A negative sum game for losers
 
Goals:

  1. This thread should help to uncover the marketing lies of the forex industry.
  2. Please post scientific publications and reports from regulators about CFD's, binary options and retail forex.
  3. If somebody has knowledge about leaked statistical data from forex brokers that prove how retailers are getting ripped off in an epic scale... post what you have.
  4. Post evidence about tail risk in extreme market conditions (SNB event on January 15th, 2015, flash crashes, extreme spread widenings...)
  5. post facts, not fiction



As as starting point, this is a good summary.....

Scientist Discovered Why Most Traders Lose Money 24 Surprising Statistics

Rolf Common Trading Wisdom, Trader Entertainment

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 well 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 dont 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.
  25. Conclusion: Why Most Traders Lose Money Is Not Surprising Anymore


After going over these 24 statistics its 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. Dont 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 nave 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

Arguments against retail forex:
http://www.infosperber.ch/Politik/De...en-und-Reichen

https://www.forexfactory.com/news.php?do=news&id=639290
Gain pays 500 USD per customer.....

Birger Schfermeier - der angebliche Profitrader ist auch nicht mehr als ein Betrger
http://www.brokerdeal.de/blog/arete-...ld-was-glaenzt


HudithePfupf Mar 24, 2017 11:49am | Post# 2

The regulators are finally starting to get the whole picture of the extreme harm to society the forex industry causes.

http://www.leaprate.com/forex/regula...unt-offerings/

According to data drawn from the CNMVs latest study, from January 1st, 2015 to September 30th, 2016, 82% of investors who entered into CFD transactions made a loss. The total losses of 30,656 investors, including transaction costs, spreads and fees, came to 142 million (the aggregate results were losses of 52 million plus 90 million in fees, spreads and other costs).

Some European Union countries have proposed and in some cases even implemented a range of initiatives to limit the leverage of investments in these products or restrict their marketing by placing constraints on advertising or remote sales via call centres. CNMV stated they didnt rule this option out.

More an more countries in Europe impose regulations that put limits to marketing, leverage, promotion etc. RoW will follow soon.

tunera Mar 24, 2017 11:55am | Post# 3

95% of all businesses fail within a few years.

Most of businesses failure means also huge debts.

A positive thing about "stocks/fx/futures/options/commodities Trading" is that traders who fail end up without money in their trading account, but no debts.

DonPato Mar 24, 2017 12:04pm | Post# 4

Trading is and always will be a ZERO SUM game. When you have completely understood the meaning of that phrase you will see that your expectations for trading (as evidenced by you above diatribe) are completely misplaced. Think of it this way... There is a reason the call this activity "SPECULATING". Put you big boy panties on and deal with it.

DonPato Mar 24, 2017 12:06pm | Post# 5

. A positive thing about "stocks/fx/futures/options/commodities Trading" is that traders who fail end up without money in their trading account, but no debts.
Their money pays the winners... That is why it is zero sum.

Tom81 Mar 24, 2017 12:13pm | Post# 6

Who cares if average Joe doesn't know how to trade? He is old enough to make his on decisions. People also gamble in casinos and we all know probabilities are working against them. People lose money in Forex not because system is rigged, but because most retail traders don't want to learn boring math and statistics behind money and risk management. They want thrill, excitement and have get rich quickly attitude, that's why they get ruined. No one asks them self why hedge funds and investment banks are employing top math, IT and financial graduates for their trading desks, if trading is so easy. Trading is not a rocket science, average person can learn it, but you have to learn. I'm in the game for eight years and I'm still learning.

HudithePfupf Mar 24, 2017 12:17pm | Post# 7

{quote} Their money pays the winners... That is why it is zero sum.
To bad this statement is not true.... think about why.

Mingary Mar 24, 2017 12:21pm | Post# 8

Trading is and always will be a ZERO SUM game. When you have completely understood the meaning of that phrase you will see that your expectations for trading (as evidenced by you above diatribe) are completely misplaced. Think of it this way... There is a reason the call this activity "SPECULATING". Put you big boy panties on and deal with it.
Sorry, that is incorrect.
It's a "less than zero" sum game.
Retail forex is a tax on people who are bad at finances
Lottery is a tax on people who are bad at math.
The above mentioned posted info is no diatribe, it is the reality of forex.

tunera Mar 24, 2017 12:35pm | Post# 9

{quote} Their money pays the winners... That is why it is zero sum.
no it's not, but it doesn't matter anyway.

Tom81 Mar 24, 2017 12:40pm | Post# 10

Trading is business just like any other business. If you want to become successful attorney you have to go to law school, take bar exam and then practice law for years if not decades before having any chance of becoming good lawyer. Why would such competitive field as financial markets be any different? People have an illusion of easy money waiting for them around the corner. If it were so easy, we would have hundreds of millionaires on this forum by now.

HudithePfupf Mar 24, 2017 12:45pm | Post# 11

I'm still learning.
I would be interested in....
- what you are still learning after 8 years, that is really improving your profitablity, beside adapting to market conditions?
- how your learning curve looks like and how much improvement you expect to unlock by additional learning
- what you have learned in regards to max leverage applied and minimizing trading costs?

By the way.....
I care if there is a huge gap between retail forex brokers marketing claims and what average Joe actually can achieve based on hard evidence.
I care if people are getting ripped of in an epic scale based on false promises, spread widening, plattform freezes, manipulation or outright fraud.

The-Flipper Mar 24, 2017 1:04pm | Post# 12

FX is like any other market.
I've seen it all.

If you trade like a sucker, you will burn like a sucker.
And the reality is:
99.99% are suckers.

metta87 Mar 24, 2017 1:11pm | Post# 13

FX is like any other market. I've seen it all. If you trade like a sucker, you will burn like a sucker. And the reality is: 99.99% are suckers.
but are you part of the 0.01% ?

HudithePfupf Mar 24, 2017 1:11pm | Post# 14

95% of all businesses fail within a few years. Most of businesses failure means also huge debts. A positive thing about "stocks/fx/futures/options/commodities Trading" is that traders who fail end up without money in their trading account, but no debts.
Wrong.... they can end up with an desastrous negative balances.....

Maybe it's worth to refresh the collective memory.....just one example.....

The Swiss SNB Tsunami........15.01.2015
https://www.forexfactory.com/showthread.php?p=7995664

Retail forex with typical leverage up to 100 and in some cases even up to 1000 (at very shady brokers) can financially ruin you within the blink of an eye, if you trade overleveraged. The counterparties of retail traders are interested to provide retail traders as much leverage as possible. It gives them a mathematical edge.

Mingary Mar 24, 2017 1:11pm | Post# 15

Trading is business just like any other business. If you want to become successful attorney you have to go to law school, take bar exam and then practice law for years if not decades before having any chance of becoming good lawyer. Why would such competitive field as financial markets be any different? People have an illusion of easy money waiting for them around the corner. If it were so easy, we would have hundreds of millionaires on this forum by now.
It is soooooo not like any other business.
You can find attorneys in the phone book. There are no "millionaire retail forex traders" in the phone book.
.. and I know what your reply will be, I will just give you the answer now:

Absence of evidence is not proof of existence.

tunera Mar 24, 2017 1:16pm | Post# 16

{quote} Wrong.... they can end up with an desastrous negative balances..... Maybe it's worth to refresh the collective memory.....just one example..... The Swiss SNB Tsunami........15.01.2015 https://www.forexfactory.com/showthread.php?p=7995664 Retail forex with typical leverage up to 100 and in some cases even up to 1000 (at very shady brokers) can financially ruin you within the blink of an eye, if you trade overleveraged. The counterparties of retail traders are interested to provide retail traders as much leverage as possible. It...
ok, you lost your money gambling in the fx market and now you are sad and angry about that.

as you surely know, only a small percentage of "traders" survive in the long run, you are not one of them, accept it and move on with your life.

stop wasting yours and other people time

Mingary Mar 24, 2017 1:19pm | Post# 17

{quote} ok, you lost your money gambling in the fx market and now you are sad and angry about that. as you surely know, only a small percentage of "traders" survive in the long run, you are not one of them, accept it and move on with your life. stop wasting yours and other people time
There is no doubt some forex gamblers do win the jackpot from time to time.
They luckily find themselves on the right side of a big move.
... and 2 weeks later, it's all gone (:

cat Mar 24, 2017 1:26pm | Post# 18

[quote=HudithePfupf;9706033]Goals: 80% of all day traders quit within the first two years.

Which says it all, no need to read the rest really. Dreams of becoming millionaires shattered, they find consolation by convincing themselves ( and usually trying to convince others ) that trading is a fool's errand. This gives trading the widely perceived, though wrongly perceived reputation as a slaughter house for gamblers, which in many ways it is for those with the wrong approach. Only those who have been the distance and done the mileage, know otherwise, and they are relatively few.

TheRealTruth Mar 24, 2017 1:30pm | Post# 19

It's a good business.
The risk is less than the risk of building and operating a factory, establishing retail chain stores, plus almost every single business activity, even of that of opening a grocery store.
I <3 trading

tunera Mar 24, 2017 1:31pm | Post# 20

{quote} There is no doubt some forex gamblers do win the jackpot from time to time. They luckily find themselves on the right side of a big move. ... and 2 weeks later, it's all gone (:
I agree, trading per se is just gambling, and on a long scale enough, the survive rate is just 0.

So is every other business or job, the greatest companies may survive even 100 years, but they all fail sooner or later (a bad market recession or depression, a war, a new particular taxation or regluation, whatever, and they are gone).

Human life itself do have a survival rate of 0% (everybody die sooner or later).


If you like make money (or try to make money) with trading, you can and should do it.
If you don't like it, don't do it.


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