Currency fluctuations on an electronic board in Tokyo: Nine out of 10 people who engage in foreign exchange trading lose money, according to a recent French survey.

The finding will surprise no one with any experience of the practice — all too often, leveraged trading turns out to be a fast road to the poorhouse.

Between and , 89 per cent of French clients lost money. Furthermore, individuals learn little from their experiences, with the most active and regular traders seeing their losses mount over time. A new US study of more than , forex transactions finds ordinary traders lose an average of 3 per cent per week.

Unfortunately, the losing traders tend to keep schtum about their losses while winning traders are quick to brag about their gains, with the latter almost 50 per cent more likely to talk on social networks about their trades than their less fortunate counterparts. Traders who are told about other winning bets trade roughly 20 per cent more often over the following week. Losses are not confined to the forex market. A study of day traders in Taiwan over the period found that in an average year, , people engaged in day trading.

The vast majority — 87 per cent — lose money in a given year. Less than 1, traders — fewer than 1 in — are able to consistently outperform, the study found. These figures may shock those who follow the quarterly client profitability statistics released by US forex providers. Here, the picture appears less ominous, with 38 per cent of forex traders making a profit in the second quarter of this year.

However, a number of caveats apply. Firstly, ordinary traders may well make a profit in one particular quarter only to lose a lot more in another.

Certainly, the study of Taiwanese day traders suggests only a tiny minority maintain their outperformance. Secondly, there is a survivorship bias. The US profitability stats only look at accounts that were active in a particular quarter, so those who depleted their accounts in a prior quarter will not appear in the figures. Most of the time, forex is a quick road to ruin, with the US-based National Futures Association NFA estimating the average retail trader gives up after four months.

Accordingly, forex providers tend to spend lots of money on marketing — they need a continual stream of new customers to take the place of those who have just emptied their accounts. Reasons for losing Why do most traders lose? According to Forex Capital Markets FXCM , one of the main players in the industry, forex traders are correct more than 50 per cent of the time.

However, they lose roughly twice as much money on losing trades as they win on winning trades. However, this alone is no cure-all for losing trading behaviour. Secondly, while stop-loss orders prevent losses from getting out of control, they greatly increase the probability of a losing trade. Studies indicate stop-loss orders are not the panacea they are often made out to be, for this very reason. In truth, ordinary traders are competing against professionals with better knowledge and resources.

Indeed, the game is difficult enough for the pros. Psychologist, author and trading coach Brett Steenbarger , who runs the Traderfeed blog, estimates fewer than 5 per cent of the traders he worked with a decade ago, are currently trading and experiencing success. Ordinary traders rarely have this edge. Leverage limits In the US, there have been efforts to limit the dangers.

Until , ordinary forex traders could leverage their accounts The NFA proposed a limit of More recently, the NFA proposed a ban on the use of credit cards to fund forex accounts. This followed a survey which found poorer people were predominantly using credit cards to fund their accounts, with the majority losing their money and being saddled with debts they could not afford.

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None of this is enough for former Commodities Futures Trading Commission director Michael Greenberger , who recently called for the retail forex market to be shut down. While Greenberger may not like the US environment, forex trading is much less regulated again in Europe. According to a CitiFX report earlier this year, leverage ratios of Indeed, a number of UK providers offer leverage ratios of Contrast this with Japan, which reduced leverage limits to Plus often offers cash promotions to entice potential customers.

The sheer ease of forex trading in Europe is presumably a factor in its popularity; according to CitiFX, there are 1. Despite this, CFD trading remains extremely popular.

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Earlier this year, ETX Capital took over Dublin-based spread-betting and CFD firm Shelbourne Markets, citing the fact that about 50, people in Ireland trade CFDs. Whether all of them are aware of the risks is a moot point. Leverage may be a tempting proposition, but the international evidence suggests those who cannot resist its allure will pay dearly for doing so. Your Money Personal Finance Exchange Rates Markets Funds Tracker All Business.

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Trading often likely to cost you money Nine out of 10 French traders lose money and evidence confirms high-risk bets rarely turn out well Tue, Nov 25, , Brett Steenbarger Michael Greenberger Sean Quinn Commodities Futures Trading Commission National Futures Association. Real news has value. For news you can trust. More from The Irish Times Business.

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