How’s Your Broker Doing?

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
Alpari 25% 1,563
Forex.com 23% 11,344
FX Club 29% 4,245
FXCM 23% 15,023
FX Solutions 24% 6,587
GFT 33% 10,358
IBFX 28% 18,579
IG Markets 20% 464
MB Trading 24% 4,822
Oanda 51% 49,584
PFG 21% 2,098
Average 25.5% 8,291

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:

Ending balance – Beginning balance + All withdrawals – All deposits

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.

In fact, why don’t you check out the new School of Pipsology? It’s got an awesome Brokers 101 lesson that could help you decide which type of broker suits you best.

  • broker review

    Some traders have taken their views of 4XP’s recent actions as an indication that they are a scam. However, to my knowledge, they have not stolen anyone’s deposit so that’s an extreme accusation to say the least. In my view, the problem is that they aren’t very well run. Hopefully they will buck up their ideas and get back to the lofty standards of service they were once known for, but in the meantime I won’t be holding my breath.
     

  • akeakamai

    While I agree that statistical anomalies should be approached with skepticism, the numbers do show that a “certain” broker has more accounts than the next 3 behind it combined. Why do they have so many accounts? There must be some reason they command a lion’s share of the retail FX market.

    Usually you see numbers like this in other industries because the top company advertises the crap out of their products, but that theory falls flat on its face in this case (Oanda doesn’t advertise!)

    Even if they are only marginally better, smart traders (aka profitable) will still flock to them because any edge at all is worth switching brokers for!

    From personal experience there are strategies (specifically scalping) that are profitable with Oanda but are not with other brokers, not naming names, directly due to superior spread costs and quality of order execution.

  • akeakamai

    While I agree that statistical anomalies should be approached with skepticism, the numbers do show that a “certain” broker has more accounts than the next 3 behind it combined. Why do they have so many accounts? There must be some reason they command a lion’s share of the retail FX market.

    Usually you see numbers like this in other industries because the top company advertises the crap out of their products, but that theory falls flat on its face in this case (Oanda doesn’t advertise!)

    Even if they are only marginally better, smart traders (aka profitable) will still flock to them because any edge at all is worth switching brokers for!

    From personal experience there are strategies (specifically scalping) that are profitable with Oanda but are not with other brokers, not naming names, directly due to superior spread costs and quality of order execution.

  • o990l6mh

    I copied this from a a post and I agree fully with what the poster says:

    I am guessing the reason for this is: 1) their razor thin spreads, 2) limited leverage (they were always 50-1 max), 3) availability of micro-lots & lot-sizing tools, 4) no EAs (except those who want to pay $300/mo or something like that) and 5) IMHO most importantly, interest on deposits. It could be a fluke about how they calculate the numbers, but apparently they’ve said that they excluded dormant accounts.

  • o990l6mh

    I copied this from a a post and I agree fully with what the poster says:

    I am guessing the reason for this is: 1) their razor thin spreads, 2) limited leverage (they were always 50-1 max), 3) availability of micro-lots & lot-sizing tools, 4) no EAs (except those who want to pay $300/mo or something like that) and 5) IMHO most importantly, interest on deposits. It could be a fluke about how they calculate the numbers, but apparently they’ve said that they excluded dormant accounts.

  • akeakamai

    I had another idea, Oanda has subaccounts, so maybe there are a lot of profitable traders that run multiple subaccounts which get included…?

  • akeakamai

    I had another idea, Oanda has subaccounts, so maybe there are a lot of profitable traders that run multiple subaccounts which get included…?

  • monstapips

    that’s an interesting theory. maybe thats the reason why they have so many accounts.

    I honestly find it difficult to believe that one broker can have a substantially greater profitability ratio. I can’t wait to see when more news on this comes out.

  • sergeyrar

    so what’s the deal with the 95% lose in forex thing ?

  • sergeyrar

    so what’s the deal with the 95% lose in forex thing ?

  • http://www.turnkeytrader.com LarryLivingston

    Wow, for a broker that doesn’t advertise, that’s just about the best marketing You could possibly have.

  • http://www.turnkeytrader.com LarryLivingston

    Wow, for a broker that doesn’t advertise, that’s just about the best marketing You could possibly have.

  • Jambooman

    The advertising attracts new trader to advertised broker. Experienced trader finds the better broker after trying unacceptable brokers. I known of two very good traders with multiple accounts on Oanda. that is why I use Oanda.

    Interest on non active account could partly explain the difference.

  • Jambooman

    The advertising attracts new trader to advertised broker. Experienced trader finds the better broker after trying unacceptable brokers. I known of two very good traders with multiple accounts on Oanda. that is why I use Oanda.

    Interest on non active account could partly explain the difference.

  • jenesaisquoi

    I don’t think interest on nonactive accounts explains it because only active accounts are included. And even if nonactive accounts were counted, several other brokers also pay interest on their accounts, so it shouldn’t be a big factor.

  • jenesaisquoi

    I don’t think interest on nonactive accounts explains it because only active accounts are included. And even if nonactive accounts were counted, several other brokers also pay interest on their accounts, so it shouldn’t be a big factor.