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Forex has come along way since it was introduced to retail. I remember days of "slow servers", internalization of all orders, and inability to asses risk, even by LPs. But, I think that the latest evolution of FX, and for that matter many of the OTC markets, has been operating as close as possible to an exchange. BATSs recently purchased HotSpot FX, Deutsche Borse acquired 360T and to me it indicates that OTC and exchange traded product could provide a fair dealing ground. You could potentially have a large pool of LPs who practice and enhance the transparency of their FX dealing.
Clearly there are shady operations in FX typically in countries where regulation is "relaxed". However, they are thriving too because their customers are lured with "bonuses", etc. and their account minimum are just plain low.
Thanks,
Matt Z
Optimus Futures and FX
There is a substantial risk of loss in futures and Forex trading. Past performance is not indicative of future results.
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Around 95% of Forex traders are failures. !!!!!!!!!!!
Stands to reason why. 99% are DAY traders.
Forex traders are conditioned to be day traders, therefore conditioned to fail.
Around 95% of all Businesses fail within the first five years, so with that in mind, FX trading is no different to running any business.
The reality is 1-5% of all active traders are profitable less comms/fees, irrespective of how they trade.
"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
Thats a very simple and good point. I knew the general business startup failure rate was near that over 5 years but the dots did not connect. Would have been very useful for "please stop helping me" conversations in the past two years hehe
I tell people I make icecream now. A mentor's idea.
Regarding @Neo1's statement, which has also been an alleged "fact" that Rand Paul has thrown around. Maybe it's true somewhere else in the world, but in the US, it's patently false.
At least four studies, including this reference from the Small Business Administration, say otherwise. Quoted from the Washington Post:
"The Small Business Administration, in its informative frequently asked questions on small businesses, provides this answer on the survival rate of new businesses:
“About half of all new establishments survive five years or more and about one-third survive 10 years or more. As one would expect, the probability of survival increases with a firm’s age. Survival rates have changed little over time.”
The source for the SBA statement is the Bureau of Labor Statistics, which offers this chart on survival rates."
I'm guessing the rate of trader failure is higher than that
Sounds like the source of the 50% after 1 and 95% after 5 also came from the US Small Bussiness Administration.
I guess it also comes down to how you classify a failure.
"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
As you said, its regional in many other (developed) countries it is higher. The US is different (good and bad) from other developed nations. One might also consider that many startups are founded TO be bought from inception. The appetite for innovation through acquisition being great.
Rand Paul (whoever he is haha kidding) is possibly not far off as it kinda depends on how you define a failure?
"If failure refers to failing to see the projected return on investment, then the failure rate 70 to 80 percent. And if failure is defined as declaring a projection and then falling short of meeting it, then the failure rate is a whopping 90 to 95 percent.
"Very few companies achieve their initial projections," says Ghosh. "Failure is the norm."
"
I expect most ordinary individuals quit trading between 2 and 5 years as they don't make enough consistently? A few especially talented ones just utilise trading for income until they have bridged a gap to doing something more worthwhile to them.
Regarding the original point. I asked around when I started in 2014 before choosing Futures. I carry out due diligence when getting into things. Of the three(ish) dramatic (> ~$100k) retail Forex failures involving seemingly sufficiently intelligent people I am personally aware of:
1. Variable leverage (got sucked into greed)
2. General inconsistency (brilliant guy who always, always screws everything up or the universe hates him)
3. A corrupt broker in the especially bad old days.
EDIT: Neo and I were editing at the same time lol.
But what is the definition, at the US SBA, of the failure of a business?
I have heard that statistic thrown around as well... (90% of small businesses fail within the first couple of years of operation, yada yada. Sounds like trading, yeah?) But what constitutes a failure of a business? Is it their failure in the third year to file taxes? Is it the actual owners filing an official form to the SBA that says they are closing their business?
And what if that business in their 3rd year of losses, then posts a profit in the 4th year? Does the SBA take that into account, or are they only looking at their own return rate on the small-business loans they dole out and receive interest income on? How is the SBA calculating the difference between a failed business venture and a successful one?
The SBA gives out loans. That was their original charter (mostly), when the US Congress created the thing in 1953, after the fallout of some other organization formed by Herb Hoover during the Great Depression of the 1930s, which became something else, which became the SBA, etc. But like any other US governmental reporting agency, you need to take their reports with a grain of salt.
The USG just ain't that good on their own data, man. They know not what they got, lol!
Back to the point... with this small-business failure rate in context, what constitutes a failed trader? Is it someone who blows up a 10K account once? Twice? On the third try he/she succeeds and makes millions. Does he/she now count as a success? Or are they still counted as one of the 95% that failed? What is the context of that failure rate?