Does Anyone Make Money in the FX Market?

The question of the day is whether anyone actually makes money in the (pick your name of choice; FX,Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term, Currency or Foreign Exchange) market?

Before delving into that question, I want to point out that this is a promotional post for our just completed Q4 Forex Magnates Quarterly Industry Report (QIR). It’s our largest ever in terms or articles that were included in the report. For those of you who have read previous editions, you are familiar with the report and the in-depth analysis it provides into the retail and institutional FX industry. If you haven’t checked it out before, here’s your chance to start out fresh for 2014 and get ahead of the game. You can check out this link for the entire list of contents.

With that out of the way, among the articles included, a look back at last November’s Forex Magnates London Summit. Unlike typical event review articles, the focus of the post in the QIR was lesser known items taking place as well as important trends taking place. Among the items during the event were numerous panels taking place with discussion about the industry. If you’ve read previous articles of mine on Forex Magnates, you may have deduced that my personal favorite was the Technology in FX panel which I found to be the most diverse and informative. Among the other panels, one that got off to a bit of a weak start, but then began to roll nicely was the buy-side discussion which discussed whether FX is a proper asset class.

Participants answered unanimously that FX is an asset class, especially as close to 100% of volumes are speculative. However, alluded to during the panel was the question of whether anyone is making any money in FX trading. When it comes to retail investors, Forex Magnates' Quarterly US Profitability Reports represent that around 65% of all US customers experience losses in their accounts every quarter. However, even beyond the retail segment, panelists pointed out the difficulties among professional traders in FX, especially among fund managers, where the industry’s longest lasting fund, FX Concepts closed its business during Q4 2013.

Among reasons for the difficulties in trading FX, the assets' unpredictability was mentioned. Describing this, Fabio Frontini, Founder, Abraxas Capital Management Limited, summed it up by explaining that, “People think the FX market is easy, but it isn’t. There is no bias, it becomes a 50/50 market.” He added that this differs from equities where there is a natural bias for the long side.

So What?

As one can imagine, client losses wouldn’t be something that a market maker driven industry is too worried about. But, the question beckons, what if the industry becomes branded a ‘fools game’? On a longer-term outlook, the industry could face an identity crisis if traders fail to see much of an opportunity for gains. While the potential profits of accessing forex’s massive Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term and a 24-hour market will always attract traders, the reality is that trader interests change. In this regard we are already seeing an increase of non-FX products coming to light (bitcoins anyone?).

(One more QIR plug) For more on this question, insights at the London Summit, and the entire industry report which includes analysis on emerging trends and key broker volume figures, head on over to the Quarterly Industry Report main page.