The Harsh Reality of Forex Trading: Insights from Regulators' Data
Those who embark on a career as a trader do so with only one goal in mind: to earn money. Of course, the element of fun is present, but there's no doubt that there's an economic interest behind it. It must be said, however, that making money with Forex is not at all simple. It's a truth that needs to be realized right from the start, perhaps even before starting to invest. The risk is realizing it the hard way, literally at your own expense.
To fully understand the difficulties a trader may encounter along the way, it might be enough to sift through some official data about the number of those who actually make money with Forex. Data that, to be honest, is very discouraging but if brought back to its natural dimension, and if subject to the proper clarifications, allows you to develop a realistic - and not pessimistic - understanding of the trading phenomenon.
ESMA's Findings on Trader Losses
The most-cited figures on this topic come from ESMA, the European Securities and Markets Authority, which coordinates with national regulators such as Italy's Consob. National regulators' analyses of CFD trading across different EU jurisdictions found that 74% to 89% of retail accounts typically lose money on their investments, with average losses per client ranging from €1,600 to €29,000. A similar data-driven scrutiny now applies to pass rates at prop trading firms.
Who the Data Covers
It must be said that this data concerns exclusively retail traders, i.e. individuals who, privately - and therefore without referring to any investment company - frequent Forex. This clarification is useful to bring the data back to its natural dimension: in fact, even inexperienced traders, those who have just started, are included.
Why Results Take Time to Show
This data, however, does not exclude an important phenomenon, which more or less unofficially is known by long-time traders: results come late. The trader can be compared to an athlete who wins over distance, a sort of marathon runner. In a nutshell, many years are needed to admire the results. If this is the case, how can such a high loss rate be explained? Simply, with two considerations (supported by logic but not by the data itself).
- Trivially, it takes longer than a single year, looking at the aggregate data, to be able to earn seriously.
- In recent years, the market has been literally invaded by the classic "Sunday traders", i.e. ordinary people who, with a very small baggage of knowledge and perhaps spurred on by some effective advertising campaign, entered the market and came out with broken bones. It goes without saying that these do not count, although they are able, from a statistical point of view, to affect the percentage of losing traders.
