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Starting to detail forex profitability data

Each quarter US forex brokers are required to report customer account profitability figures, a requirement which went in to force in 2010 (with data back to 2009). As of this writing, the most recent update available is for Q3 of 2012, which you can find over at Forex Magnates. On average, these reports show that about 30% of active customer accounts are profitable in a given quarter. These numbers often get trotted out as countering the oft-repeated suggestion that 95% of traders fail, a topic which always gets a lot of conversation going when brought up.

While these profitability figures provide some interesting information, they are severely limited. This is something which doesn’t seem to be understood by many forex traders. The broker numbers are only a snapshot view for a 3-month period. They include anyone who has done at least a single trade (the definition of “active”), and profitable can mean a gain of $0.01. As a result, they don’t give us a lot of useful information. Most importantly, they don’t give us any idea of what % of traders are successful in the long run, because we have no idea (from the data) what fraction of the 30% are consistently profitable from quarter to quarter.

In this post I want to address the consistency point using some data I have on-hand for use in my PhD research. It comprises the trades completed by nearly 8500 accounts between January 2009 and April 2012 – a total of over 2.7 million transactions.

To facilitate reasonable comparison, I’ve produced quarterly figures from the trade data which are comparable to the broker-reported figures – namely % of active accounts profitable. Here’s how the traders in my data set stack up:

The accounts in my data come from all over the world and a large number of different brokers. In acquiring the data set I was looking for something which would be fairly representative of general individual trader activity and performance. As you can see in the table above, though, the accounts in my data have consistently shown a higher profitability % each quarter than those reported by the US brokers. This isn’t enough data to call the difference statistically significant, but I think we can safely say that the traders in my account are somewhat better than average, at least using this % profitable metric.

I make mention of the above to frame what I’m about to present.

Since consistency of performance is not something we can get from the broker-reported figures, I decided to take a look at that. This is a very basic study, but it provides some insight, I think.

Basically, I looked at each trader account to see how often a winning quarter is followed by another winning quarter. My data covers 13 full quarters.

Here are some of the notable bits from the figures:

  • Out of the nearly 8500 accounts noted above, 4596 accounts (54%) had at least 1 profitable quarter somewhere along the way.
  • There were 7634 total profitable account-quarters – meaning if we add up the profitable quarters for each trader and sum that all together we get 7634. If we compare that with the 20,724 quarters in which accounts did at least 1 trade we get about a 37% quarterly profitability rate, which fits in pretty well with the figures from the table above.

Now, since the question is one of consistency, I broke things down based on traders winning in back-to-back quarters. Removing accounts which only traded in Quarter 13 (thus having no back-to-back quarters) gets me down to 7933 accounts.

  • A total of 4239 accounts (53%) had at least 1 winning quarter, and there were 6860 winning quarters out of 18,849 total quarters traded (36%), both about in line with the numbers above.
  • Only 4381 accounts actually traded in more than 1 quarter, and of that group 2930 had at least 1 profitable quarter, which is about 67%.
  • Of those with at least 1 profitable quarter, 1250 were able to have back-to-back winning quarters on at least one occasion, about 43%, producing 2211 total back-to-back winning quarters across all accounts.

In order to look further at the frequency at which back-to-back profitable quarters are seen we have to account for the fact that anyone with a first profitable quarter in a potential back-to-back as Q12 will not be counted because there is no Q14. By that I mean while the data will show a back-to-back for Q12 and Q13, it cannot show it for Q13 and Q14. As a result, while 1250 accounts had back-to-back winning quarters, thus at least 2 winning quarters overall, only 950 accounts can be evaluated in terms of going back-to-back multiple times.

  • Of the 950 accounts with at least 2 winning quarters we could test for repeat back-to-back, there were 434 (46%) who had better than a 50% rate of doing so.
  • There were 241 accounts (25%) with a 100% success rate in following one profitable quarter with another.
  • Among the 214 testable accounts with 4+ winning quarters, 171 (80%) were successful in going back-to-back more than half the time, with 67 being 100% successful (31%).

In other words, the consistency rate is low in general terms. On average, less than half of those who make a profit in one quarter do so again in the next quarter. That means we can expect less than 15% of accounts to be profitable in consecutive quarters, based on the broker-reported data. And seeing as the data I’m using here is from what looks to be a somewhat above average group of traders, we can probably shave a bit off even that 15%.

Furthermore, even among the 15% who are able to repeat, less than half are able to do it multiple times. That means not only is there no consistency among the profitable traders broadly, but there’s not a great deal among those who experience success – at least until you get further out into those who have a history of repeating.

This isn’t a complete analysis of the profitability figures, obviously, but it’s a start. In the future I’ll post some additional numbers to further the discussion. Comments, suggestions, and thoughts are both welcome and encouraged.

3 replies on “Starting to detail forex profitability data”

thank you for the must be very well conected to have acces to that kind of data. i suspected the quarterly results were fake. look into the trade explorer performance demo and live and you will see that short term succes is achievable but long term no . i have seen on myfxbook only 4 traders that have 2 years of consistent profit. my quess is that the 1 year succes is lower than 1%. this is a complete lie on the forums with people that lie to themselves(2 months profit and they think they are proffesionals) and from the brokers who know about this . look also into the dukascopy trader of the month performances and you will see that the results there are fantastic >100% to 1000% monthly but the winner of the year has only 100%. that means that all the monthly winners lost all of it. i could provide you with some trade explorers wich show huge results only to be followed by a loss.

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