Quick Take
Offshore brokers have a worse success rate than better regulated onshore brokers in the ESMA and FCA regions
The success rate is inversely proprptional to the miniumun amount of money required for a deposit
Social and copy trading reduces a traders chance of making a loss because they can follow or copy more experienced traders
Experience and market knowledge is key to trading success as evidenced by professional trader success rates versus the average European retail trader.
The best broker measured by their success rate is a relative newcomer, RoboForex. Their higher customer success rate could be attributable to their Copy Trading platform. They also run monthly demo account trading competitions with decent cash prizes - an excellent way to hone your trading skills and boost your trading capital. No fees involved.
Measuring success
This article looks at a 2022 survey conducted by www.investingoal.com into European Securities and Markets Association (ESMA) brokers who are regulated by EMSA and operate in the European Union. These are online derivative brokers (typically CFDs) that offer their services to traders and are obliged to disclose the percentage of their clients that lose money. It's ironic that this metric is referred to as a "success" rate when in fact it measures a lack of success!
Survey results
The table at the bottom of this article shows the trader success rates for 2022 and it's fairly shocking seeing the high failure rates:
across 52 firms, on average 71.63% of traders lose money by trading within the ESMA area
the average rate for 33 UK FCA regulated brokers was 70.84% who have similar regulations as ESMA
offshore brokers show an average rate of 81.83% which is explained in part by them being able to offer higher margin than 30:1 as in the ESMA and FCA broker regions.
Success rates and deposit size
The survey also found that the lower the minimum deposit, the higher the percentage of losing clients.
There are several possible reasons for this:
The less money a trader invests, the less they feel attached to the money deposited, which can lead the trader to be less careful and act less responsibly when making a trading decision.
First experiences in trading present the most amount of risk, due to a lack of experience. Low minimum deposits attract first-time or beginner traders who don’t want to risk losing significant amounts of money.
CFDs are leveraged products, and an account funded with small amounts of money can risk incurring margin calls easily even when using relatively low leverages.
More experienced traders can open trading accounts for small amounts of money to try out new and riskier strategies in secondary accounts.
Social trading and copy trading
In the above firms surveyed, the traders are self directed - they make their own trading decisions. But in recent years, we have seen the rise of social trading and copy trading. This type of firm was also examined and found to have a positive impact on trading performance.
Professional traders only
Traders in the ESMA area are classified as either retail or professional. Brokers can decide whether to accept registrations from both groups or only from professionals. Professional traders enjoy higher margin than retail but do so at the expense of regulatory protection.
Fibo Group in Europe only accepts professional clients, and the percentage of traders who lose money with this broker is only 58%, which is a 19% decrease from the percentages of traders losing money with the 52 other brokers analysed in the survey. So despite having higher margin, the percenatge of losers was lower.
This is perhaps unsurprising because one of the criteria of being classified as a professional trader requires "the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged" which likely means they have better knowledge of trading than the average retail trader. Or maybe a few have access to insider information and their apparent success skews the results.
My view FWIW
Whilst you cannot regulate against idiotic behaviour and degenerate gambling, the majority of traders begin trading in the full knowledge that it's a risky business and expect with the right tools and knowledge, they may be able to achieve decent profits. So why do so many fail?
In my view, the tools and education provided by brokers are inadequate. For some brokers, your loss is their gain so why would they want you to succeed? However that dark view is slowly changing as some brokers are starting to offer decent tools for trading and some excellent charting platforms like Tradingview can now connect to your broker so you can trade directly from your charts.
Secondly, there are too many fakes on the internet claiming to be trading experts but are really marketers looking to earn affiliate income. Paid trading signal providers are typically expensive and few are any good. So people waste time and valuable capital trying out useless strategies in the hope they eventually find a reliable one to use.
Lastly, trading requires a certain mental toughness. It's hard to accept losses because it means you are wrong. And most of us don't like being wrong! But if you have a strategy that calls a trade right 60% of the time, you should know that the other 40% will be losing trades or better still, breakeven. Therefore taking small losses should not be an emotional experience. Unfortunately, the cognitive biases that the human brain inflicts on us are not helpful when trading and require practice to overcome.
How we can help improve your success rate
The purpose of this website is to help traders find strategies and other resources to help them trade to obtain consistent results. Even as far back as the 17th century, Isaac Newton recognised the power of a community dedicated to solving particular problems. He wrote in a letter “If I have seen further, it is by standing on the shoulders of giants.” We can all learn from each other.
If you want to join our trading community, reach out to other traders for help and perhaps even share your trades, then join us on Twitter @bestforexmethod or search on the hashtags #3crsquad and #3cr. You're not alone in your trading journey.
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