Forex Traders Profitable Rate Much Higher Than Stocks and Commodities Traders

By Lawrence

Reports from the US forex brokerages indicate that retail forex traders are quite profitable over the past few quarters. Some firms reported that they have close to 40% of their retail clients being profitable in last quarter 2011.

The survival rate of stocks and commodities traders is below 10%. That is a well known figure and it has been this way for decades. We are talking about at least 4 times as much retail traders are making money with forex here. I think it is something we should pay attention to.

Why retail traders in forex are doing so much better comparing to their comrades fighting in the other markets?

Several explanations are possible:

  1. Forex is easier to trade, specifically, its trend quality is better
  2. Retail traders in general are more suitable to trade instruments like forex because of the technical trading methods they learn are more effective on forex than stocks and commodities
  3. Retail traders trading Forex are more skillful, or, at least more careful

First point is actually documented by quite a number of forex brokerage sites. The possibility of taking a piece from a trending move in forex is higher than the same on stock indices. Such studies could be self-serving to drum up businesses,  however the fact that forex trading is continuous every week for 120 hours, by definition, should provide a better environment for trend development. The stock markets around the world, which open only certain hours within a trading week, are populated by gaps that reduce trend quality significantly.

Second point is often cited in forex trading forums. It sounds valid since there is no real fundamental valuation possible on currencies, all traders have to depend their trading decisions on the charts to certain degree. As traders using technical analysis on currencies dominated the forex markets, the resulting price moments are more likely to move in line with technical expectations. It is just a self-fulfilling prophecy.

Third point is my own take on the phenomenon. I think it plays a very important role because many retail traders thought they know what the commodities are, what the stocks are, and in turn, they also think they know what the stock indices are. As majority of retail traders jumping into stock markets assumed that they have enough understanding on what they are dealing with, it makes them gullible to the pitfalls in these markets. For retail traders going into forex trading, many of them have to at least clearing the hurdle of understanding what forex is, learning something about its high risk nature, and acquiring some basic chart reading skills.

In short, retail traders trying their hands on forex are more prepared in comparison to their counterparts who trade stocks and commodities.

It all starts from just a small difference in the way the new forex traders perceive the markets they are getting into – willingness to accept the fact that they really know next to nothing about it. From this starting point, their minds open up more easily. Information are analyzed and absorbed as oppose to rejecting concepts on the basis of hearsay assumptions (many people do not even know that majority of their assumptions on market behaviours are totally wrong). Concepts like trading risk is hammered into the head of many forex traders right from the start. That is a huge contrast comparing to stock traders in general.

Not everyone can open up totally to accept new ideas. Not everyone can learn new skills like trading techniques quickly. But the survival potential in getting through the learning process of trading becomes much higher for these forex traders just because many of them accepted the fact that they need to understand the forex market better first before jumping onto the boat.

Think of someone with years of unsuccessful attempts to make money from stock/commodity/index trading. It is difficult for this person to trash years of preconceived ideas to start over again. Maybe, it is a good idea for this person to switch over to forex trading. The chance of this person being able to start a clean slate with forex seems more likely than this person being able to correct the mistakes and wrong approaches employed so far.

Will this person turn profitable trading forex?

From the figures I quoted, there are still 60% of the retail forex accounts are not profitable.

I guess the better question to ask is whether this person can admit, truthfully, that there is a lot to learn.

(To see the report go here)


  • moneymonkey May 4, 2012 at 11:51 am

    I turn from failing at trading index future to so far so good as a forex trader

  • Lawrence Chan May 7, 2012 at 4:35 pm

    Then stick with forex. There is no point to trade index only as there are so many instruments out there to choose from.

    Good luck!

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