Aite Group 2010 volume report – makes no sense at all

Aite Group is one of the only few publication releasing reports and estimates of the retail forex industry. However reading

Aite Group is one of the only few publication releasing reports and estimates of the retail forex industry. However reading the summary of their latest publication I’m simply amazed how this supposedly ‘professional’ report sold at about $2000 a piece is as speculative as the next guy’s. Aite Group estimates that the global retail FX audience surpassed 8.3 million people at the end of 2010, and that retail FX currently generates daily turnover of US$315 billion. And I’m saying – what???

In my latest US profitability report I estimated the total worldwide retail forex audience at being between 1 million to 1.5 millions based on reports by various brokers. Now let me show you why Aite’s estimate makes no sense at all:

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Fact 1: There are exactly 152,053 retail forex traders in the US. This figure was reported by US brokers to the CFTC.

Fact 2: US population is roughly 300 millions while worldwide population is roughly 7 billion.

Fact 3: FXCM reported exactly 139,167 total active accounts and a monthly volume of $250 billion.

Fact 4: Gain Capital reported exactly 85,562 funded accounts and a monthly average volume of $130 billion in 2010.

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Fact 5: ICAP, world’s largest currency liquidity venue used by all major banks and funds, reported a record daily volume of $232.8 billion in March 2010.

Now based on these facts let’s make some simple calculations –

1. Adding Facts 1 and 2 (7 billion divide by 300 million and multipye by 152,053) we could estimate that there are 3.54 million forex traders worldwide. This of course is possible only if same percentage of worldwide population (including countries like Iran, India, China, Afghanistan, Somalia and whatnot) is trading forex as in the US. We all know this is impossible as US is one of the most advanced coutnries in the world in terms of trading in general and retail forex (over the internet) in particular. There are not that many countries, except Europe, that can match the percentage of traders out of overall population as in the US. In many countries the figure is 1/10 if not 1/100 therefore making Aite’s estimate of 8.3 million traders completely disproportionate.

2. Adding Facts 3 and 4 (dividing monthly volume by 22 monthly trading days and then dividing the result by number of accounts) we get that an average trader trades about 0.8 standard lots a day. So even if Aite’s estimate of 8.19 million traders was correct they should have multiplied it by 0.8 lots (80,000) and would have received a daily volume of $661 billion. Again, this makes no sense at all.

3. I have no idea how did Aite come up with the $315 billion estimate but based on monthly volumes reported by industry leaders such as Saxo, FXCM and Gain this is an overestimate. Volumes in Japan have dropped significantly ever since the local FSA reduced leverage to 1:50 and 1:25, just like in the US, so the whole industry there is more or less now same size as the rest of the world. This would mean that the worldwide retail forex volume is roughly $250 billion (if we ignore the fact that not only retail forex traders trade with retail forex brokers and just count the overall retail forex brokers’ volume). Add to this Fact 5  -ICAP’s daily volume – and you see that it’s quite impossible that the whole retail forex industry traded 50% more than what big banks and funds did.

I’m the last guy to go out and discredit other competitors/publications but when it comes down to gross overestimates and miscalculations in a publication which is sold as a professional industry report I believe it’s my job to point this out.

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