Forex Social Network

Did you know the members of the Currensee social network are significantly better performers than the general population of forex traders?

It’s true. I’ll run you through the numbers.

As a basis for comparison I’m using the quarterly figures the Commodity Futures Trading Commission (CFTC) requires US forex brokers to report. They show the percentage of active accounts which are profitable in each period. Active here means an account which has done at least one trade over the three months in question. Forex Magnates aggregates this information each quarter. You can see the figures for Q1 of 2013 here.

The broker-reported figures started for Q4 of 2009. In order to do the comparison, I went back in the Currensee trading records to that same starting point and calculated the percentage of profitable accounts for each quarter for members of the social network using the same methodology.

Here is the comparison of results quarter-by-quarter:

You will immediately notice that the Currensee members beat the CFTC required figures not just on average, but in each quarter as well. In fact, it’s only close on a couple of occasions. And in case there is any question as to whether these differences are meaningful, I ran a test of significance. For the statistically oriented, the T-Test of the comparison of means came through with a value of 4.94, making the difference quite significant.

One interesting thing to observe in the broker-reported figures is the increase in the percentage of profitable account in the last couple of years. They are clearly higher than the ones from the first half of the period. At least part of that can be attributed to a survivorship effect whereby profitable traders keep trading and losers drop out. The general expectation would be for an influx of new accounts to offset those where trading stops, but that seemed to stop happening in Q4 of 2011. Since then the bias in the number of active accounts has been negative (though there was a big tick up in Q1 of this year) while the number of profitable accounts has held steady. And yes, there does appear to be some impact of survivorship in the Currensee figures as well, as we’d expect.

It should be noted that in looking at the Currensee figures I only used trades which were not done as part of the Trade Leaders Investment Program – in other words, non-social/copy/auto/following trades. I wanted to do that to judge the performance of members in their own right, not performance directly driven by the trading of others. The CFTC figures have so such filter, so likely do reflect the influence of social trading. If we judge social trading as likely having a generally positive impact on performance, then the CFTC figures could be expected to overstate the performance of individual traders in the general populace, making the performance of Currensee social network members even more impressive.

In academic terms, the Disposition Effect is a psychological bias in traders and investors to take profits quickly and let losses run. This is something which has been talked about in the markets for many years. It comes from a combination of risk aversion effects and a bias toward certainty over uncertainty. In other words, we humans generally prefer a sure gain, even when there is the prospect for a bigger one, while at the same time we prefer having the prospect for a smaller (or no) loss, rather than a sure one.

It’s pretty easy to see how these biases can turn into being quick to book a gain, but giving the market a chance to turn around rather than taking a sure loss.

It is to avoid the potential negative outcomes from this bias – not making as much as we should on winning trades, and taking losses which are much bigger than they should be on the bad trades – that we introduce systems and processes in our trading. For some it goes as far as strictly mechanical trading. For others it includes rules about where to place stops and how to move them up with the market. They attempt to enforce a discipline on us to avoid allowing psychological biases like the Disposition Effect to negatively impact our performance.

Keep in mind, however, that this needs to apply to social trading as well.

In most cases, when using an auto-trading or mirror trading system like Trade Leaders you have the ability to make changes to trades that are done in your account. As a result, there may be the temptation to close out or cut-back a winning trade before it is done by the trader you are following. This is not something that is good idea.

Consider the math of trading performance. Expected returns follow this formula:

R = (win% x avg. winner) – (loss% x avg. loser)

If you close out winning trades early you are impacting the size of the avg. winner. That lowers R - the expected return. This could go so far as to produce a negative expectancy in the most sensitive systems.

In other words, as a social investor you need to ensure you abide by very similar discipline as you would if you are trading in your own right. Don’t let the Disposition Effect drag down your performance.

 

This month, we were very excited to learn that Currensee would be featured in the magazine Alternative Latin Investor. This bimonthly publication covers the alternative investing industry in the Latin American region. The Latin American (LatAm) markets are among the fastest growing areas for the industry globally.

What was most interesting about the piece was the perspective put on Currensee, as it was being observed through the eyes of the LatAm investment industry.

Titled “Currensee: The Next Step in Forex Trading,” the article began by explaining a few aspects of foreign currency trading that are alluring to the LatAm investing industry. Characteristics like the massive size and liquidity of the world currency market, the speed and flexibility in which transactions can be executed, and being aware of the potential to generate returns during times of volatility are all attracting LatAm investors to Forex.

The ALI’s article discusses two aspects of this program have been particularly appealing to LatAm investors: transparency and diversification.

Because Currensee began as a social network for Forex traders to collaborate, communication has always been an integral component of how Currensee operates. Though today the focus has shifted more towards the Trade Leaders program, communication is still there and it equates to a high level of transparency.

“What’s unique is that our customers can give one another permission to view their actual trading activity and performance… There’s a level of transparency beyond any alternative investment I know of,” says Currensee CEO Dave Lemont.

LatAm investors are also drawn to the program’s ability to achieve “double diversification.” What this means is that as an investor in the Trade Leaders Investment Program, investors benefit from asset class diversification in the Forex market as well as diversification in their individual accounts by choosing from a variety of Trade Leaders. This new method of diversifying is an exciting development for the world of investing.

The article drives home the points around diversification for all investors and the proof is in the numbers – the fact that from 2000-2010, the S&P 500 has dropped a cumulative 3.7%. That means if you’re one of the many who had been adhering strictly to the general 60% stocks/40% bonds rule of thumb, you ultimately lost out.

Lemont says: “The stock market is manipulated by big players and algorithmic traders on a daily basis. The foreign currency market is so much bigger: US$4 trillion a day, with 24-hour trading. We’re not going to get together and move the euro today. But we could get together and move the price of a small-cap stock.”

So although collaborating and trying to move the euro is not likely something investors can achieve, keeping a diversified portfolio is. Keep cool and keep it diversified.

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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.

1 Comment

I had the opportunity recently to meet with an accounting professor at a UK university.

Wait!

Before you let her primary specialization turn you away, I should say that this particular professor has been doing a fair bit of research into the impact of networks on individual performance. One of her papers looks at securities analysts in particular, but she has also done research into other types of performers, like corporate CEOs. The bottom line is that the quality of one's network is a major explanatory factor in how well an individual performs in their defined role.

Currensee is, at its core, a network of traders. The linkage is clear.

Note, however, that I specifically used the term "quality" and not "size". A massive network isn't necessarily a valuable one. That means you probably aren't doing yourself a whole lot of good "friending" everyone you come across, or who sends you an invitation. This doesn't just apply to trading, by the way. (Are all your Facebook "friends" really of any meaningful value to you beyond the vanity of the number?)

The value of a network comes down to the value of the information which comes to you through that network. Again, note that I did not use the term "quantity" here either. We are all bombarded with vast amounts of information each day. The key to success in trading, as in life, is to get the right information at the right time.

In academia the word "informed" has come to be used to refer to consistently profitable traders or investors. Basically, the idea there is that after you factor out simple luck in terms of explaining performance you have some set of market participants who make money based on their own decision-making. These participants have some kind of informational advantage over the losing traders and investors.

Makes sense, right?

The question, though, is do these "informed" folks have more information? Or do they have better information? In some cases it might be the former. In other cases it might be the latter.

Now for the real twist.

Is that more/better information a function of actual information transmission from one's network and/or information sources? Or is it a function of better information processing abilities by the individual – meaning they create through their analysis new information that is not available to others?

That latter question opens up an ability debate, one which could then be extended to the nature vs. nurture discussion made quite famous by the film Trading Places as well as by Richard Dennis and his Turtles (I actually met a new batch of Turtles recently). But I digress.

The research suggests that ability is less important than one's network. That would imply the key to trading success could be primarily a function of developing a strong network rather than in trying to figure out some holy grail trading system.

So what do you think? Are winning traders better at processing information? Or are they receiving better information from their networks?

 

Social media accounts for 22.5 percent of the time Americans spend online, according to a recent Nielsen report covered by The New York Times. It’s no surprise that Facebook topped the lists of social sites where we spend the most time. But when looking for guidance and advice about where to place your hard-earned dollars, maybe it makes better “cents” to tune into the investment decisions others are making. The following services seem like good places for sourcing and sharing investment advice with some nifty social tools. Interestingly, several of them leverage the practice of mimicry, or auto trading. This is one of the hottest trends in social investing - whether you are trading stocks, currency or other funds - allowing investors of all levels to leverage the success of select, experienced traders.

SocialPicks – A community for stock market investors to share investment ideas, exchange market research and track peers’ investment performance. The service also tracks picks by financial “gurus” such as Warren Buffett, professional analysts and financial bloggers so you can see how well your investment perform compared to them.

Covestor – Using this service, you can track what more than 180 proven investors are doing with their own money, choose whom to follow and mirror their trades.

E*Trade – Maybe best known for its baby commercials, the company introduced its Online Investment Community a few months ago, creating a social platform that lets participants tap into the collective knowledge of other E*TRADE customers and validate their investment strategies.

If you’ve been playing your cards right, then maybe a social network exclusively for the wealthy is for you? Affluence.org is an exclusive online social network for the affluent and influential. Its aim is to form a socially conscious, elite and exclusive community that helps wealthy, influential and affluent people make life better for both themselves and others. If you want to be part of the club, you need to have a net worth of more than $1 million or an income of $200,000 a year.

And, if you are looking to “pay it forward” by “giving back,” you should also check out Fundly, a social fundraising site that helps causes accept donations from donors and gain new ones via Facebook, Twitter, LinkedIn and other social channels.

What other social networking resources have you come across during your investment journey?

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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.

Turn on the TV, listen to the radio or read any web page and you can’t seem to escape the pessimism, doom and gloom surrounding the economic crises happening across the globe. Whether it’s Friday’s historic downgrade of the U.S. economy’s credit rating by Standard & Poor’s or the actions of the European Central Bank to intervene in the plight of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) or the debt ceiling debacle happening here in the U.S., one thing is clear: it’s a tough time to be an investor.

Source: www.psfk.com

Investors everywhere are struggling with the same issue: how to combat a down market. Investor confidence has been rattled, and they are looking for answers. Not answers that plummet into the toilet as the price of gold skyrockets or as another Wall Street scandal is uncovered, but real opportunities to succeed as an investor.

My grandmother would tell stories of hiding money in jars - sometimes in the backyard and other times under the mattress. To her, it was the only way to keep a dollar a dollar. But in these uncertain times, investors are looking to more than keep their dollar whole – they are looking for ways to invest and still buy that retirement condo in Florida or take that trip to Spain or put two kids through college. Staying whole isn’t enough in today’s shaky economy, and investors don’t have much in the way of new options.

Sure, there are hedge funds, mutual funds, ETFs, managed accounts and the like. Not too much new here. Most of these instruments invest in the same blue-chip stocks or 20-year T Bill. So much for diversification. So, how do investors go beyond the same old, same old and find exciting new ways to invest?

Personal finance reporter at SmartMoney, Sarah Morgan, recently covered the foreign exchange (Forex) investing opportunity. She wrote, “New research suggests that retail foreign exchange traders – who now account for $4 trillion in daily trades – can dramatically increase their odds of winning by simply copying the moves of more successful traders, and several new currency-trading sites now allow traders to do just that.”

Sarah’s article, “New Tool For Currency Traders: Mimicry,” examines the opportunities to take advantage of the Forex market, well-known for its complexity on one hand and profit potential on the other. The challenge has always been how to take advantage of this asset class if you’re not a trader. Making money as a retail Forex trader is tough business. Less than 30 percent of Forex traders are profitable and most churn and burn in less than three months, which doesn’t sound too promising, and we’re back to doom and gloom. But, what about a way to follow and take the trades of the experts? Call it mirror trading, auto trading, copy-cat trading or mimicry. It’s about leveraging the success of top Forex traders and making it your own. A new way to create a portfolio of people – professional Forex traders who know the ins and outs of the market, follow rigorous risk management practices and tested investment strategies all aimed at driving alpha.

Now, as Sarah points out in her article, not all Forex investing programs are created equal. Investors need to review their options carefully to ensure they are picking the right program for their investment needs. In any mirror trading program, the program is only as good as the expert traders. Sarah says, “Javier Paz, senior analyst at Aite Research Group, recommends Currensee, which he says is easy to navigate and sets a higher bar for its ‘expert’ traders than other services. To become a so-called expert that others can follow, traders must demonstrate at least three straight profitable months and use appropriate risk management techniques. Plus, the firm pays these successful traders for their performance, so their interests are aligned with their followers, he says.”

As we all know, there is no magic bullet in the world of investing. Sadly, the Magic 8 ball that sits on my desk can do no better than tell me that “all signs point to yes.” Well, being an eternal optimist, I’ll take it.

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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.

As you’ve undoubtedly noticed we at Currensee World Headquarters have been working diligently over the past few months to bring you the Currensee Trade Leader Program, at the same time we have been making some great changes to the Currensee Social Network.

We’re excited to review with you some of the major changes and improvements we’ve made to your Trader Profile.

  • First, we’ve integrated information from the Risk tab into the main Profile page. This means you have a single view of the key data on your account and that of other Currensee Traders rather than several.
  • Next, we’ve moved the Ticker information to the top right-hand corner of the Profile and we’ve added a Ticker drop-down list so that you can choose the ticker you want to look at and be able to simply look at that information.
  • Most excitingly, we’ve added monthly performance to the Profile. Did you start a new approach to trading in June? Meet with your Mentor in August? Drop a few pairs in September? Well, the monthly historical performance information will give you a clear view of your performance, month over month, for as long as we’re able to report. Check out one of our Trade Leaders, Ajay Awtaney's monthly performance below.

So enjoy the changes, and stay tuned … we’ve got much more to share with you in the coming weeks and months!

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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.

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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.

3 Comments

So it all started when some of our traders requested we provide an easy way for them to publish their trades directly to Twitter and also comply with the StockTwits’s format so their real trades could be published on both.

So being a responsible company, we’ve implemented the feature exactly how our traders requested it, and we now have a few hundred traders that automatically post their real trades directly from their real broker account into Twitter in real time.

Surprisingly enough, StockTwits has decided to block all the traders that post real trades from Currensee. These trades are flagged as spam, even though this can only be real people posting real trades directly from their real accounts. These traders are not even trying to advertise themselves, as there is not advertisement planted in the feed.

It seems that when the entire world is demanding more transparency from the financial world, StockTwits has decided to block the reality and engrave fake and fraudulent activities on their flag. FAIL.

So if you want to shake off the imaginary world of StockTwits and see what real trades do with real money you can follow our trades on Twitter.

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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.

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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.

Are you looking to earn a quick buck? No need to trip over small children or fellow pip chasers, because all Currensee members are getting an extra 10 Bonus Bucks to spend in the Currensee Marketplace as part of our Bucksapalooza extravaganza. The Pips of Currensee are fans of free Bucks and tacky names, and thought there was no better way to kick off this [sticky] summer than to give back to the traders that give us a reason to come to work every day.

To the skeptics and party poopers, here’s the not-so-fine print you’re all waiting for:

  • You get 10 Bonus Bucks. Really, they’re free. You don’t owe us your firstborn, but we do enjoy homemade soufflés.
  • Spend your Bonus Bucks and other Bucks you’ve earned by participating on Currensee.com towards purchases in the Currensee Marketplace.
  • Your 10 Bonus Bucks and this offer will self-destruct on Wednesday, June 30, 2010. On Thursday you will wake up a refreshed individual minus those 10 Bonus Bucks if you haven’t spent them.

Why are we doing this? Well, the obvious answer is because we’re awesome. But the real reason is because we’re always riding our high-horse about real traders, real trades, real time, and it’s time to give back with real rewards. We’ve really pulled out all the stops so you can get your Buck’s worth. Choose from live trade planning webinars, daily newsletters from our Chief Market Analyst, a Thomson Reuters trading widget, and more. In fact, if you’re reading this your Currensee Bonus Bucks are waiting. Quit reading about it and go spend your free money!

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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.