Tag Archives: profitability

Each quarter the US forex brokers who fall under the regulation of the Commodity Futures Trading Commission (CFTC) - which is most of them – report profitability figures (see the most recent tallies posted by Forex Magnates here). This has been going on since 2010, with reported figures back to 2009. On average, these reports have shown that just about 30% of active accounts (those doing at least 1 trade) make money in any given quarter. The CFTC put this reporting requirement in to provide a bit of transparency as to the reality of performance among traders, but in some ways they have actually muddled things a bit. Let me explain.

First of all, the broker-reported figures are for accounts, not traders. Granted, for most people that is the same thing. As I discussed in a recent post, however, some traders have multiple accounts and the evidence suggests that these are among the better performers. If that is indeed the case, then the broker-reported figures actually overstate how many traders make money each quarter. It’s not likely by a huge factor (probably just a couple percentage points at most), but it is one way these figures belie reality.

The second, and to my mind more significant, problem with these quarterly figures is they provide no indication of whether there is any consistency of profitability. As I documented in Starting to detail forex profitability data, this is something very important to keep in mind because the reality is that most traders don’t get the job done consistently.

According to my research, only about half of all accounts (keeping to the comment measurement of the broker-reported figures) had at least 1 winning quarter during the 3+ year period of my study. Of those who had at least 1 profitable quarter, only about 43% were able to follow that up with another winning quarter in the next three month period. That means we need to take the 30% figure mentioned above and cut it in half (and then some) to get at some sense of reality where consistent profitability is concerned.

Taking it a step further, less than half of those who were able to generate multiple winning quarters were able to produce back-to-back winners more than 50% of the time. That means even among those who are part of the about 15% able showing back-to-back winning performance there is very little consistency of performance.

If we were to continue extending the consistency question to include higher levels of repeat performance we would see lower and lower percentages. In other words, it’s only a small fraction of active forex traders who consistently make money. It’s a hard game to win. Keep that in mind as you decide on how you will approach it.

If you’re anything like me, you like to be in control. Maybe it’s my type A personality. Maybe it’s because I'm a middle child. Maybe it's my background in finance. But, I like to be in control – especially when it comes to my investments. The challenge with many of the financial instruments we invest in, such as mutual funds, ETFs, managed accounts and hedge funds, is that we have to hand over complete control to someone else – a money manager, a portfolio manager – someone else calls all the shots.

Well, I’m happy to tell you about a pretty cool new feature set that we’re releasing to investors in the Trade Leaders program. As you probably know, the Trade Leaders program is different because it’s built to help investors achieve success and profitability in the foreign exchange market – all while giving them complete transparency and control. Here’s the scoop on the new feature set we call “Advanced Controls.”

Today, investors in the program have the ability to control their Trade Leaders portfolio by easily changing, deleting and modifying allocations by Trade Leader. So, at any time if an investor decides they don’t want to follow a particular Trade Leader, they can end the relationship and we automatically close any positions that Trade Leader had open for the investor. Likewise, if an investor wanted to change an allocation in a particular Trade Leader, say, from 30% to 50%, they can do that as well in the click of a button.

The Advanced Controls features take allocation to another level and give the investor the ability to control leverage and drawdown. Don’t want to bother with adjusting these levers? No worries. You don’t have to make any changes. These controls are for those active investors looking for more of a hands-on experience and for fund managers and asset managers who have specific drawdown limitations and leverage caps in their strategy or investment policy guidelines.

What can you do with the new Advanced Controls features?  So glad you asked.

  • Think a Trade Leader has tight risk controls and want to set your Drawdown Protection to something other than 30%? You will now have the ability to set Drawdown Protection by Trade Leader. Now you can decide how much risk you are willing to tolerate and can set this control anywhere between a 1% and 90% limit on draw downs.
  • Concerned about the maximum level of drawdown that can happen across your entire account? You can see the Account Level Drawdown Protection, calculated based on Leader by Leader Protection and unallocated capital.  This feature shows the maximum drawdown that the account could realize. It takes into account any unallocated capital and is based on the overall account balance.
  • Decided that you would like to invest in a Trade Leader but want to scale down on risk? You will be able to set a Leverage Multiplier on a Trade Leader, which allows Investors to reduce the amount of risk on an individual investment.  The Leverage Multiplier may be set to take any level between 10% and 100% of the Trade Leader’s leverage; a 50% multiplier will give you half of the Trade Leader's leverage level on each trade.
  • Worried about over-leveraging and want to limit the leverage that may be taken by your account at any given time? You will have the ability to set a Leverage Cap on the account of up to 5000% (50:1 leverage).  Trades which would put you over this leverage amount will not be taken, but you will start trading again once your leverage is reduced beneath this level.

Many of these controls are customizable per Trade Leader you follow. So, for each Trade Leader in your portfolio, you can set a variety of leverage and drawdown controls based on your appetite for risk. Once again, if you don’t want to set them, you can simply use the pre-set values we’ve determined for you based on the Trade Leader’s strategy and risk management profile.

We’d love to hear from you as you start to use some of these nifty new controls. How is it improving your Trade Leaders experience?

-------

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.