Earlier this week, the results of the U.S. retail forex brokers account profitability survey were released. U.S. brokers were asked to reveal their profitability figures, as well as the total number of non-discretionary accounts. What this means is that brokers had to divulge the number of accounts that were profitable.
Why is this report important?
If you ask me, this is a step in the right direction. Financial and regulatory agencies across the globe are working towards establishing a higher degree of transparency in the markets. In the end, it is average Joes like you and me who win, since we can now make better informed decisions.
Below are the results for some of the bigger forex retail brokers in the U.S.
|Broker||% of accounts that are profitable||Total Non-Discretionary Accounts|
Note: Data taken from forexmagnates.com
Averages do not include Oanda and IG Markets
Looking at the table, we can see that one particular broker stands out. Apparently, Oanda not only has by far the greatest amount of non-discretionary accounts, but the highest percentage of profitable accounts at 51%. That’s double the average of 25.5%!
On the other end of the spectrum, we’ve got IG Markets, which has the fewest number of non-discretionary accounts at 484, as well as the lowest percentage of profitable accounts at just 20%.
Where the Huck did these numbers come from?
According to Interbank FX (IBFX), the profitability report covers active non-discretionary accounts.
Huh? Active what?
Active accounts are those that had trading activity in the past quarter while non-discretionary accounts are those controlled by the account owner alone. That means that accounts which are controlled by money managers and accounts that didn’t have a single trade in the third quarter weren’t included in the report.
From there, account profitability was calculated through this formula:
If the result is a positive number, then the account is considered profitable. Otherwise, it’s counted as unprofitable. From the total number of active non-discretionary accounts included in their survey, they are then able to determine the percentage of accounts which were profitable during the last quarter.
Did all brokers follow the same method?
Supposedly, yes. Only the active non-discretionary accounts were included in their reports and all brokers were asked to use the same formula to compute for profitability.
So then how do you explain the huge discrepancies in profitability?
Well, without audited reports from the CFTC, it looks like we’ll have to rely on the numbers the brokers crunched and coughed up themselves. Though I have to admit, it does seem fishy how a certain broker seems to stand out from the crowd. Seeing as everyone else seems to have about the same percentage of profitable traders, it’s sort of hard to believe Oanda is THAT much ahead.
Sure, it can be argued that tighter spreads, quicker execution, lack of slippage, and informational support allow traders to be more profitable under certain brokers. But can these explain the huge discrepancy from the rest of the pack? I highly doubt it. Now, I’m not accusing anyone of tweaking the numbers, but the enormous gap does raise questions about the consistency of methodologies.
Still, in the end, you have to give props to the CFTC for conducting such a valuable study. Like I said, the real winners are the traders themselves.
But even though this survey gives us a bird’s eye view of the whole broker scene, these numbers shouldn’t be your sole reason for selecting your broker. After all, you were born with eyes, so you SHOULDN’T follow blindly. Instead, you ought to make sure you do extensive research before choosing which broker is best for you.