Is retail forex trading profitable?

Can retail Forex traders actually make money?

How can you as a retail trader profit from the forex market…

It’s often stated that forex traders are comprised of two groups. Those in the 90% of non-profitable traders and those in the 10% of profitable traders. Some say profitable traders are more likely to be in the 5% bracket rather than the 10%. We can assume that this statement to be true as there is no evidential or reliable statistic out there that can prove this statement either way.

Forex retail Trading – the statistics

However, what we can go by is the “US Retail Forex Profitability and Active Accounts Report” which is released quarterly. This report is a part of regulatory measurements US brokers must comply with. The retail Forex Profitability report shows the profitability of retail traders in the United states of America only and can only be a guide for the world-wide retail market. Going by the report on average around 35% of retail traders are profitable every quarter.

Now we can assume several scenarios from these statistics.

The same group of traders are consistently profitable
Only a small proportion of the 35% are consistently profitable
Profitable traders rotate from having winning quarters and losing quarters.
The profitable traders are only just in profit (> than 1% profit)
losing traders quit trading and new comers replace them

Before we go further, lets now establish that these retail traders can be categorized into three groups.

Consistently profitable
Intermittently Profitable (keeping accounts at a breakeven)
Consistently non-profitable

It’s likely that the majority of the 35% are profitable on a consistent basis, and a portion are rotating between loss and win. Just a reminder these are statistics from America only, and other countries may differ.

I consider myself as a “glass half full” kind of person and more optimistic than some so, I believe it’s more like 30% are profitable including the percentage of breakeven traders and 70% of retail traders are non-profitable respectively.

However, we shall go by what is typically known and assume that there are about 5 to 10% of all forex traders that are consistently profitable.

This statistic is not only consistent with retail traders alone but all traders including, bank traders, hedge fund managers, and other financial institutions. Just because you are a small-time retail trader it does not mean you are doomed to fail because you are competing with the “big boys” as most retail traders put it.

What about banks and institutional forex traders?

Banks and institutions have only a marginal advantage over retail traders. So, don’t be fooled or intimidated by the so called big players. Can they move the market? Yes, but usually not entirely on their own.

With some currencies, it can take trades of several hundred million dollars to make any significant move in the market. With that being said a few banks placing the same trades at the same time will encounter price moving in a big way. When market sentiment of all the big players are combined and in sync with each other are able to create the big trends.

Not all hedge fund manages catch these trends and when we look at the statistics on average these big hedge funds typically are on a very tight yearly return. On average hedge funds make an annual return of around 5%. to 10% over a 10 year period. In comparison, a retail forex trader making just 2% a month will be out doing some of the best traders in the world.

We all often see on Bloomberg releasing the annual top 25 hedge fund managers but we never see the worst 25 or even the hedge funds at a break even. The annual return of the top 25 typically range between 10 and 40%. We are only looking at just a handful of the thousands of fund managers out there.

Rather than just speculate on how much large institutions make and what percentage is profitable its always best to do your own research to get the information. Some statistics can be found by a google search but come incomplete and full data can only be sourced from a paid service and its usually quite expensive.

So, the question being, How can you make the 5% club and make consistent profits? I’m not talking about making a million out of pocket change but I am talking about consistent profit. It doesn’t really matter what size your account is the true nature of why we trade Forex in the first place is to make a profit. As soon as we realize this the sooner we will start making consistent profit.

You must know why you want to trade in the first place.?

There is no holy grail to forex trading.
There are some key elements to making consistent profits and there is no “right way”, right system or holy grail that enables us to extract large sums of money out of the market. What it takes is a combination of all the right elements the right broker and the right mindset that will make you a profitable trader.

I have seen book after book claiming to make you rich out of Forex Trading and this is a kind of deception to the novice trader. The attitude of these so-called forex Guru’s and internet marketers lead to false information about Forex and is why Forex is often called a scam or gambling.

I would love to hear your responses on this subject. There is a lot of debate to how much a retail trader can make.