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:
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:
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?