The Lawrence Chan Blog

For background information refer to Part 1

I am referring to future traders as a group who trade any kind of future contracts. They have their accounts setup at various future brokerage firms. Grouping traders this way does not produce very consistent information due to big difference in margin requirement on different future contracts. For example, traders who trade mini FX contracts would need less capital than those trading the large index future contracts.

Since I cannot get very precise answers from the firms in the first place, I guess we have to settle for that.

Account Size Distribution

All data are cut off at the end of 2012 unless otherwise stated. Data from 3 firms only. Statistics on individual accounts only.

The information I gathered is not totally out of expectation. I think it is a good starting point for discussion as there can be many ways to interpret the data here.

The N/A entries means I did not get an answer at all for those questions.

My take on the statistics:

1. Larger account size plays a role in survival for sure.

2. Notice the lower boundary of account size at $10,000 to $50,000 is higher at the current standing than the new account one.

3. Some accounts must have moved up the account size ladder over time. I know this partly because of the next set of statistics.

4. When I asked for further breakdown of the $50,000 to $250,000 category, I think the questions somehow intimidated the firms hence I did not get a better breakdown of the data.

Income Distribution

Futures brokerages track client income for taxation purpose. Thus they have very good information regarding the performance of their clients. The problem to gather this information is that it is extremely sensitive. Even though I tried very hard to make the questions as general as possible, many questions are not answered.

A few important points:

1. I choose $50,000 as the boundary because it is approximately the medium family income for United States

2. The income level none does not include only idle accounts. It also includes accounts that have traded but resulted in net loss for the year. I tried to find out more about this with questions on the magnitude of the losses but I could not get any answers on those questions.

3. For the more category I received no answer again.

4. The consistency of the 10 years of more group implies the statistics for the other accounts would be worse comparing to the overall results.

Wisdoms From These Firms

The contacts I talked to mention several phenomenon worth talking about here.

There are a group of people who would deposit several thousand dollars, trade until the accounts go under. They would disappear for a while and then come back with several thousand dollars to start all over again. Majority of these people never make it to the point with consistent performance.

The way how the profitable accounts make it somehow follows a different pattern in their equity swings comparing to the ones that fail. The ones that have small gains and losses most of the time with occasion bigger gains are the ones growing bigger over time. The ones with big equity swings are the ones blowing up quickly. There are exceptions but rare.

A significant number of accounts that performs well at $50,000 to $100,000 a year income level do not have a balance more than the yearly income. In another words, they generate 100% to 200% return year after year.

The 5th to 8th year time window seems like a curse to many profitable accounts. During this time window, many strong performing accounts that keep growing often face a disastrous setback or even wipe-out event.

A similar time window exists for the non-performing accounts by their 10th to 12th years. Some of these non-performing accounts would simply become profitable and never look back. This last one is something I have never heard of. I am taking it with a grain of salt because it could be a self serving  statement from the brokerage firms.

Summary

As you can see, being a trader does not necessary means you will be making a lot of money. In fact, it often works out like a job for many people whose trading accounts existed for 10 years or more. It is similar to any other professions where you have to put in extra effort to improve yourself so that you can perform better.

You can also view it in a slightly different way, say, as a business owner. You have a choice to grow your business further but you have to somehow put in the effort to make it happen.

I like to research more on this subject when I get the chance. For example, the performance statistics of career traders (20+ years) will be very interesting. A study on the performance of non-individual accounts will help too because many people would choose to trade under an incorporated entity once they become profitable consistently.

To Brokerage Firms

I am not trying to pry into your firm’s secrets or stealing your clients. All I am just trying to do here is to help retail traders learning about the income potential of trading.

If you find my study interesting and that you are willing to share some performance statistics with me, please contact me at lawrence@daytradingbias.com

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Just  a reminder that due to the US government shutdown there will be no NFP report by this Friday.

It is an event shock thus NFP bias will be affected.

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Another way in looking at Ms. Galef’s other video on The Sunk Costs Fallacy.

Being a trader, if you find that you are failing to make money in trading, or that you could not improve your performance further. You need to take a step back and really evaluate yourself as an observer or an outsider.

Sometimes there is only so much you can do to improve on a trading method that has limited potential.

Think of what you have missed during the day.

Have you written down any notes about them yet?

Do you notice that some of them recurring yet you are not comfortable in trading them?

Why you are not comfortable?

Can you make yourself comfortable by trading them with sim trading or confirm your gut feeling or observations with backtesting?

Think outside of what you think you know at this point.

There is always room for improvement in our lives.

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In case you are not familiar with US government shutdowns, it has happened before and it is likely to happen now.

The last shutdown on record was 1995 November 14 to 19 and then 1995 December 16 to 1996 January 6.

What happened to Emini S&P500? Not much really.

What happened to the majors? Wow.

We are talking about several hundred pips each.

You’ve been warned.

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