I’ve been hearing a lot of comments about different sites that enable traders to display their performance to the entire world. The comments were mostly claiming that these sites have unrealistic performance, and that the calculations are not even close to being right.
I decided to check for myself, and have connected a single real account to both Currensee and myfxbook to measure for myself just how far off the performance is. The reason I chose myfxbook is not to prove anything against them – as all the other sites seem to calculate performance in a similar way – but because myfxbook seemed to have the most complaints against them for inaccuracy. This is probably due to the fact that a lot of amateur traders and non-professional money managers use them.
The first picture shows the performance as recorded by myfxbook; the second is the performance as recorded by Currensee on the same account.
Here is how Currensee (and the rest of the professional world) calculates performance, and why performance shown on an amateur site is misleading:
Account Balance vs. Account Equity
Currensee receives its price feed from hundreds of brokers, and we compare the open positions of any user at any given point of time to the open prices that their broker has for the instrument they are currently trading. By doing that we prevent traders from logging their profits while holding large losing positions for a long time until the market changes. I couldn’t find any site that does what we do. The others, myfxbook included, log the closed positions against the account balance and completely disregard any open positions. The risk in doing that is that, as you can see, performance can be presented in a much more attractive (and wrong!) way, making it impossible for any trader or investor without the proper tools to evaluate the actual performance.
Most amateur performance sites measure risk as either the max drawdown or the max losing trade. We measure three parameters for risk:
- Daily Standard Deviation – This is for us the most important measurement, and represents that volatility of the performance. In other words, does this trader advance his account in a gradual and consistent manner, or is the ride choppy and risky?
- Percent Days Losing – We measure the percent of the days the account is down to give fellow Currensee members an indication of the short- and long-term risk in the account. Having a high percentage of losing days usually means that the account would achieve performance on a long-term basis, while having a low percentage of losing days usually means that the account growth would be more gradual and consistent.
- Max Drawdown – Like others, we measure the max drawdown in the account – the only difference is that we measure it on the equity and not on the balance (See section “Account Balance vs. Account Equity” above).
Displaying a Risk Adjusted Return Parameter
Currensee uses a unique algorithm that measure a trader’s performance and risk, and displays a single number that evaluates the trader. Lately Tradency has replicated the concept we have been advocating for more than 6 months, calling their version the T-Score. Like Orli wrote, we are always flattered by others copying our concepts.
Currensee’s TAI (Trade Authority Index) takes the following parameters into account:
- Performance parameters, including return (based on equity, not balance),
- History in the account,
- Number of closed positions, and
- Volume traded in the account and the consistency of the trader (consistency is calculated based on deviation from a strategy).
Risk parameters include:
- Daily standard deviation (or as we call it, daily volatility),
- Max drawdown, and
- Percent days losing.
We take all these numbers, crunch them together, and give you who has the highest return for the lowest risk.
As you may know, I was also shocked to see the performance of some of the traders on myfxbook, and now that I know this is fake, I am relieved. I hope you are too.
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.