Is trading forex profitable?

I get asked these types of questions a lot, so I decided to dig into some of the publicly available records from the brokers themselves, at least in the U.S. where brokers are required to report on their client's profitability.

Here are the results from the last quarter, Q3 of 2013 from the brokers themselves:

Forex Profitability by broker

Forex Profitability by broker, Q3 2013

So, out of 96,390 U.S. retail traders ("retail" traders are independent traders, like you and me, as opposed to commercial or institutional investors) 34.2% were profitable and 65.8% were not. This is actually better than I thought it would be, as I've heard a lot of people (myself included in the past) toss around numbers like 95% of new traders are not profitable. Of course the statistics above don't differentiate between new and experienced traders; i.e. the failure rate for new traders could be much higher.

The question for most traders then becomes: what do those profitable 34.2% traders do that others don't?

 

What makes a consistently profitable trader?

When new visitors to PipHut sign up to receive our free daily forex signal, I ask them to complete a voluntary "prospect survey" that asks them a few questions about their experience, profitability, and a few other basic questions. Just to be clear, those filling out these prospect surveys are new visitors to PipHut, not old members, though I plan on doing a survey to current members to gauge their level of profitability as I expect it to be much, much higher than the averages.

Below is the statistic that really jumped out at me:

What makes a profitable trader?

Survey: What makes a profitable trader?

Out of those traders who reported being profitable a whopping 87% also reported using some sort of trading system. Out of those who were not profitable the results were split, with about 57% reporting using a trading system. For the purposes of this survey the term "trading system" was undefined and left up to the survey taker to decide if they were using a system; in other words, it could be something as simple as using technical indicator or something much more robust.

Personally, I think the number of those who are unprofitable WITHOUT a trading system is actually much higher, as the criteria for what I consider a trading system is most likely a lot more stringent in regards to consistency, repeatability, clearly defined entry/exit strategy, drawdown parameters, etc., than what, say, someone just getting started with trading might consider to be a "trading system".

Not scientific by any stretch, but I thought it was pretty interesting. I was also very surprised by the sheer number of people who reported having no trading system at all.

What do you think? Are you surprised by the broker's profitability numbers (either too high or too low) or by the trader survey results?

Join the Discussion!

  1. peter
    November 16, 2013 at 20:53Reply

    It is interesting and encouraging to know that the numbers of profitable traders are on the increase as given by the brokers in the US, unlike the 95% unprofitable to 5% profitable traders we hear everyday. This simply tells us that a trader can be successful in this business if they stick to a particular trading system that has stood the test of time. I am really surprised and impressed too with the numbers. The number is still low though.

    • Profile photo of PipHut Team
      PipHut Team
      November 16, 2013 at 22:22Reply

      Agreed, it is higher than I thought it would be just because I’ve heard that 95/5 thrown around so many times over the years (and again, I’ve definitely done my fair share of it). I’d be interested in seeing what percent of new traders are profitable their first month, first three months, first six months, first year, etc. so we could actually see the learning curve.

  2. rd
    November 16, 2013 at 21:56Reply

    It would be nice if the brokers told us *how much* the losing traders were losing and *how much* the winning traders were winning…

    • Profile photo of PipHut Team
      PipHut Team
      November 18, 2013 at 02:41Reply

      Unfortunately that level of detail is not available in these reports. The one thing we do know is that accounts that break even are considered “not profitable’ for purposes of the report.

  3. Seran
    November 16, 2013 at 22:20Reply

    so traders who trade without a system are… doing what? trading just their emotions? no wonder they are not profitable…

  4. Ayo
    November 17, 2013 at 07:44Reply

    Pls wat’s your source about the statistic above?

    • Profile photo of PipHut Team
      PipHut Team
      November 18, 2013 at 02:36Reply

      As per the 2010 Dodd-Frank legislation passed in the U.S., CFTC-regulated brokers in the US are required to report the percentage of accounts that are either “profitable” or “not profitable” every quarter. FYI accounts that break even are considered “not profitable” in the report.

  5. Lloyd russell
    November 17, 2013 at 10:28Reply

    I would like to know your definition of “being profitable I think I would much prefer something said about achieving expectations, or even a percentage of reward. Being profitable might just be about not losing on a consistent basis.

    • Profile photo of PipHut Team
      PipHut Team
      November 18, 2013 at 02:39Reply

      Lloyd, for the purposes of what is reported to the CFTC, a “profitable” account is one that makes money in the quarter that is being reported. These profitability reports are required on a quarterly basis. Accounts that break even are considered “not profitable”. So, limited yes, but better than nothing.

  6. Awopetu oluwafemi john
    November 17, 2013 at 16:21Reply

    The issue of profitability in business is vast and wide for a person just to place a value. Knowledge is attached to it but the government should be heard responsible for it. Government should put the necessary social and infrastructural facilities and you will notice the increase of profitability in business. Secondly the standard of living is very low. Take an instance a business man wit a wife and three children will have to take from sales he made to feed his family,in such situation how will he determined his profitability in business. Feeding and other things not yet inclusive.

  7. Shaishen
    November 17, 2013 at 18:42Reply

    the 95 / 5% is the klische argument of the gurus who want to sell you their
    course/chatroom/software. Pointing out the pain and offer a “solution”
    is basic marketing.
    The 95% is like the 4 glasses of water a day. Repeated often enough it will
    eventually be accepted as a fact.

  8. Beagle
    August 9, 2014 at 05:56Reply

    That is profitability over one quarter. What are the statistics like for a longer time period, like one year, five years, ten years? As Forex brokers give you more than enough rope to hang yourself, it just takes one really bad trade to destroy the positive results of numerous prior good trades.

  9. claude
    October 17, 2014 at 06:17Reply

    These results could be misleading as they are not yearly figures or long term results. Also some accounts may not be trading at all but only accumulating small interest simply because they r active and as a result this is also considered profit.

  10. Ahsan
    November 22, 2014 at 20:25Reply

    My life has really changed so much ever since I started doing Forex trading, it is one of the most profitable businesses in the world and there are no high investment required either. In fact, now day’s things have changed so much that we are getting money to work. I trade with OctaFX, it allows me to trade without any investment with their famous 8 USD no deposit bonus, it is available for all and there are no restrictions for withdrawal of the profits.

  11. Ali
    November 26, 2014 at 12:40Reply

    Nice Article

  12. Hudi
    March 23, 2016 at 15:59Reply

    1. It is funny that nobody realizes that only 35% generate a profit within 3 month time period.
    2. Within this number most of the profitable accounts will have a minimal profit – if this profit would be adjusted in terms of risk and time invested the profitability would be neglible.
    3. In zero sum game with an profit expancy of 35% for three month quess whre that number will be in 36 months – close to zero
    4. Why do forex brokers invest up to 50% of the revenues in marketing to lure in new customers?
    5. Why ist the average client turnover at these companies approx 25 – 35% ?

    I do not even believe that 5% achieve a significant profit over a 4 year time period – it is rather far below 0.1 %, but the forex industry does have a great interest to hide this fact with aggressiv marketing.

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