OANDA's high profitability numbers explained – include interest
The US forex brokers profitability numbers I recently published have caused quite an uproar in the market. For the first
The US forex brokers profitability numbers I recently published have caused quite an uproar in the market. For the first time traders worldwide were exposed to the traders profitability (the methodology though is problematic) numbers with some of the world’s leading forex brokers. However methodology used by all these brokers may have been quite different from one another and therefore rendering these numbers as incomparable. Some brokers contacted me pointing at other brokers and claiming that some of the numbers may have been gamed.
Most of the focus was on OANDA’s numbers which were substantially better than other brokers’. OANDA’s traders were the only ones with positive profitability numbers – 51% of its traders were profitable in Q3 2010. The distant second was GFT with only 33% profitability.
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OANDA is the only broker, that I know of, that pays interest on accounts. OANDA’s numbers therefore reflect profitable accounts even if those accounts were with slight loss or dormant the paid interest may have made them profitable.
Recently I was notified of the following statement OANDA posted on its website regarding its calculation methodology: “By definition from the CFTC, an account is profitable if the following formula has a value above zero: the sum of realized and unrealized gains and/or losses on all trades carried at any time during the quarter; minus fees, commissions and other charges; plus all income or rebates, including interest paid. Deposits and/or withdrawals of funds are not included.”
It’s important to note this because various brokers may have used various calculation methods, as I pointed out in the previous posts, and this therefore may explain some of the difference in results. I’m sure that we will see most brokers’ numbers converge to a certain steady average in the next reports while the methodology becomes more clear and uniform.
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That formula is all well and good, but I thought dormant accounts were meant to be excluded?
I guess either Oanda will have to adjust their reports in future, or competition will induce other brokers to start paying interest.
That formula is all well and good, but I thought dormant accounts were meant to be excluded?
I guess either Oanda will have to adjust their reports in future, or competition will induce other brokers to start paying interest.
guys check facts before typing, http://en.wikipedia.org/wiki/Law_of_Bermuda : The law of Bermuda is based on the common law legal system of England and Wales.
guys check facts before typing, http://en.wikipedia.org/wiki/Law_of_Bermuda : The law of Bermuda is based on the common law legal system of England and Wales.
R.Schuhhard – Bermuda’s judicial system is based on English Common Law. The regulation of financial services companies however is handled seperately by regulatory authorities such as the FCA.
R.Schuhhard – Bermuda’s judicial system is based on English Common Law. The regulation of financial services companies however is handled seperately by regulatory authorities such as the FCA.
and that’s why they have so many active accounts
and that’s why they have so many active accounts
The cheesy part is that they are now marketing this number on their website. So they pay a $1000 account $2 in interest in the quarter and they count the guy as profitable even if he doesn’t trade? Give me a break.
The cheesy part is that they are now marketing this number on their website. So they pay a $1000 account $2 in interest in the quarter and they count the guy as profitable even if he doesn’t trade? Give me a break.
OANDA is totally correct in their calculation. They have the most honest way of handling interest on accounts. Perhaps the other brokers should start follow suit if they are really interesting in the needs of their clients.
OANDA is totally correct in their calculation. They have the most honest way of handling interest on accounts. Perhaps the other brokers should start follow suit if they are really interesting in the needs of their clients.
Talk about a strawman argument. How can anyone believe a couple percent interest vs trading tens, hundreds, thousands of dollars is actually going to make a difference? If they included dormant accounts just collecting pennies in interest that’s a different story but they didn’t.
Talk about a strawman argument. How can anyone believe a couple percent interest vs trading tens, hundreds, thousands of dollars is actually going to make a difference? If they included dormant accounts just collecting pennies in interest that’s a different story but they didn’t.
i think it’s a smart move, they just know they can take business from unregulated brokers by using their established brand – so why not do it?
i think it’s a smart move, they just know they can take business from unregulated brokers by using their established brand – so why not do it?
Fred-
That’s exactly what they did. If an account is paid interest, it is not counted dormant under the rules.
Fred-
That’s exactly what they did. If an account is paid interest, it is not counted dormant under the rules.
I’d like to start by saying that OANDA welcomes this discussion. If the CFTC profitability measures encourage more dealers to provide fair interest payments – ideally both on open trades and on account balances – then that is a great result for the industry. OANDA has always handled interest this way however, so I want to make sure its clear this is not a gambit on our part intended to take advantage of current or future regulation. Treating clients fairly is our business model. In terms of the impact of interest, as many traders have said, its not going to… Read more »
I’d like to start by saying that OANDA welcomes this discussion. If the CFTC profitability measures encourage more dealers to provide fair interest payments – ideally both on open trades and on account balances – then that is a great result for the industry. OANDA has always handled interest this way however, so I want to make sure its clear this is not a gambit on our part intended to take advantage of current or future regulation. Treating clients fairly is our business model. In terms of the impact of interest, as many traders have said, its not going to… Read more »
@James – it comes done to evaluating products and internal resources – and whether its worth the extra manpower and time instead of using a 3rd party
@James – it comes done to evaluating products and internal resources – and whether its worth the extra manpower and time instead of using a 3rd party
Still the accounts were profitable, no one can say else. I hope other brokers will do like Oanda and start paying interest on accounts.
Oanda is the best!
Still the accounts were profitable, no one can say else. I hope other brokers will do like Oanda and start paying interest on accounts.
Oanda is the best!
Michael
Have you checked with Oanda and verified they are including dormant accounts? I agree there is a discrepancy somewhere but Oanda has told others who have inquired that they are not including dormant accounts.
As far as others possibly paying interest in order to improve stats: Who cares what their motive is? This anticipated competition between brokers will benefit traders, whatever their motive.
But until all brokers tally their results in exactly the same way, the figures are meaningless.
Michael
Have you checked with Oanda and verified they are including dormant accounts? I agree there is a discrepancy somewhere but Oanda has told others who have inquired that they are not including dormant accounts.
As far as others possibly paying interest in order to improve stats: Who cares what their motive is? This anticipated competition between brokers will benefit traders, whatever their motive.
But until all brokers tally their results in exactly the same way, the figures are meaningless.
I love Oanda because they pay interest on “dormant” accounts unlike some brokers like Alpari or GFTForex where they will deduct up to as much as $50 per month if the account becomes inactive after 3 months of no trading! Which sucks! Oanda also has the best spread and fast fills.
I love Oanda because they pay interest on “dormant” accounts unlike some brokers like Alpari or GFTForex where they will deduct up to as much as $50 per month if the account becomes inactive after 3 months of no trading! Which sucks! Oanda also has the best spread and fast fills.
hi Paul, thank you for responding. in my opinion, this new cftc reg is attempting to disclose to traders: 1. that dealers are counterparties and can profit when the trader loses and; 2. that this causes a conflict of interest the cftc is requiring this profitability disclosure so the retail traders can understand that dealers win around 70% of the time and lose around 30% of the time – TRADING! – If you disagree with this statement, then perhaps you should explain to us the principle of the cftc reg. Oanda first ever marketing attempt may have harmed its stainless… Read more »
hi Paul, thank you for responding. in my opinion, this new cftc reg is attempting to disclose to traders: 1. that dealers are counterparties and can profit when the trader loses and; 2. that this causes a conflict of interest the cftc is requiring this profitability disclosure so the retail traders can understand that dealers win around 70% of the time and lose around 30% of the time – TRADING! – If you disagree with this statement, then perhaps you should explain to us the principle of the cftc reg. Oanda first ever marketing attempt may have harmed its stainless… Read more »
The actual intent of the CFTC was not to expose the brokers that trade against their customers but to warn customers against the low probability of making money in FX. The reality is even if you tell a trader that 90% of the traders lose money he would still be convinced that he is amongst the 10% that would make money. So this additional information serves no real purpose. As a side note – being a market maker, which all the brokers in this space are, does not mean that the broker does not make money if the traders make… Read more »
The actual intent of the CFTC was not to expose the brokers that trade against their customers but to warn customers against the low probability of making money in FX. The reality is even if you tell a trader that 90% of the traders lose money he would still be convinced that he is amongst the 10% that would make money. So this additional information serves no real purpose. As a side note – being a market maker, which all the brokers in this space are, does not mean that the broker does not make money if the traders make… Read more »
Hello Asaf, Good point. You are correct when you say: “The actual intent of the CFTC was not to expose the brokers that trade against their customers but to warn customers against the low probability of making money in FX.” However, I must note that exchange traded contracts do not need to disclose these numbers to the public and the probability of succeeding in exchange traded contracts are about the same as with retail OTC forex trading. Hence, in my opinion the CFTC disclosure is due to what you noted because the dealer is the counterparty to a retail trader… Read more »
Hello Asaf, Good point. You are correct when you say: “The actual intent of the CFTC was not to expose the brokers that trade against their customers but to warn customers against the low probability of making money in FX.” However, I must note that exchange traded contracts do not need to disclose these numbers to the public and the probability of succeeding in exchange traded contracts are about the same as with retail OTC forex trading. Hence, in my opinion the CFTC disclosure is due to what you noted because the dealer is the counterparty to a retail trader… Read more »
Hi Lup, I understand your argument and I appreciate it. Internally we always debate issues and as you mentioned, we take our reputation very seriously. The reason we went forward with this campaign is simple: We believe the cause for the large variation in account profitability numbers between dealers has to do with business model choices. And when I say this I don’t refer to something as simple (but important) as fair interest payments. OANDA is on top of the list because we do things very differently and this makes it clear. Frankly, even if people are cynical about the… Read more »
Hi Lup, I understand your argument and I appreciate it. Internally we always debate issues and as you mentioned, we take our reputation very seriously. The reason we went forward with this campaign is simple: We believe the cause for the large variation in account profitability numbers between dealers has to do with business model choices. And when I say this I don’t refer to something as simple (but important) as fair interest payments. OANDA is on top of the list because we do things very differently and this makes it clear. Frankly, even if people are cynical about the… Read more »
Lup,
The profitability of the traders with a broker depend more on the type of traders the broker attract than the actual technology. For example a broker that offer free $50 will most likely lose all of these accounts and a broker that leverage word of mouth and doesn’t advertise that much will get less customers but higher quality.
As far as technology goes – it does not impact the people that don’t know how to trade.
— Asaf.
Lup,
The profitability of the traders with a broker depend more on the type of traders the broker attract than the actual technology. For example a broker that offer free $50 will most likely lose all of these accounts and a broker that leverage word of mouth and doesn’t advertise that much will get less customers but higher quality.
As far as technology goes – it does not impact the people that don’t know how to trade.
— Asaf.
Gentlemen, 2006- http://championship.mql4.com/2006/users Total Participants: 258 Total Accounts Over 10k: 44 Profitability Ratio: 17% 2007 – http://championship.mql4.com/2007/users Total Participants: 603 Total Accounts Over 10k: 91 Profitability Ratio: 15% 2008 – http://championship.mql4.com/2008/users Total Participants: 705 Total Accounts Over 10k: 128 Profitability Ratio: 18% 2010 – Ongoing – http://championship.mql5.com/2010/en/users/index Total Participants: 314 (2 disqualified) Total Accounts Over 10K (Equity): 106 Profitability Ratio: 34% The above is a sample of traders participating in MT4 contest who use an automated strategy. This can be considered one of the most sophisticated groups in the industry as they are educated enough to write code, have a… Read more »
Gentlemen, 2006- http://championship.mql4.com/2006/users Total Participants: 258 Total Accounts Over 10k: 44 Profitability Ratio: 17% 2007 – http://championship.mql4.com/2007/users Total Participants: 603 Total Accounts Over 10k: 91 Profitability Ratio: 15% 2008 – http://championship.mql4.com/2008/users Total Participants: 705 Total Accounts Over 10k: 128 Profitability Ratio: 18% 2010 – Ongoing – http://championship.mql5.com/2010/en/users/index Total Participants: 314 (2 disqualified) Total Accounts Over 10K (Equity): 106 Profitability Ratio: 34% The above is a sample of traders participating in MT4 contest who use an automated strategy. This can be considered one of the most sophisticated groups in the industry as they are educated enough to write code, have a… Read more »
Hi Lup, As the author of one of the entrants in the ongoing 2010 MetaTrader Automated Trading Championship I’m not really sure that you can extract anything terribly meaningful from your figures. I wouldn’t personally class MetaTrader contest EA writers as a whole as “one of the most sophisticated groups in the industry” for example. Note also that this years contest is for MetaTrader 5, not MT4. Our own particular “robot” entered the contest still carrying the odd known bug, because we found ourselves spending considerable amounts of time programming around “features” in the beta version of MT5. Finally most… Read more »
Hi Lup, As the author of one of the entrants in the ongoing 2010 MetaTrader Automated Trading Championship I’m not really sure that you can extract anything terribly meaningful from your figures. I wouldn’t personally class MetaTrader contest EA writers as a whole as “one of the most sophisticated groups in the industry” for example. Note also that this years contest is for MetaTrader 5, not MT4. Our own particular “robot” entered the contest still carrying the odd known bug, because we found ourselves spending considerable amounts of time programming around “features” in the beta version of MT5. Finally most… Read more »
Hi Lup, I see the point you’re trying to make but you’re losing me with your current examples as it is now a comparison of apples to oranges. First off, the numbers you’ve listed are quite a bit outside (by 50% to 100%) of what you call the standard range for profitability. The only year inline with the CFTC profitability numbers is 2010 and the contest is not over yet. Second, 14K results on Google is a really small results set. It sounds impressive until you put it up against another set of search results, like “forex” with 307,000,000… Read more »
Hi Lup, I see the point you’re trying to make but you’re losing me with your current examples as it is now a comparison of apples to oranges. First off, the numbers you’ve listed are quite a bit outside (by 50% to 100%) of what you call the standard range for profitability. The only year inline with the CFTC profitability numbers is 2010 and the contest is not over yet. Second, 14K results on Google is a really small results set. It sounds impressive until you put it up against another set of search results, like “forex” with 307,000,000… Read more »
Hi Paul, “I think it is pretty common knowledge that people who participate in trading contests take on a higher risk profile in order to try to hit a large return multiple in a short period of time.” I agree. “One of the biggest take aways from the profitability disclosure is the death of the 95% losing traders myth” I disagree. “Even the dealers with lowest profitability numbers disprove that statistic” No they don’t! I’m sure you know your own numbers inside out, but the fact that 23% of FXCM LLC’s clients were apparently profitable in Q3 2010 is a… Read more »
Hi Paul, “I think it is pretty common knowledge that people who participate in trading contests take on a higher risk profile in order to try to hit a large return multiple in a short period of time.” I agree. “One of the biggest take aways from the profitability disclosure is the death of the 95% losing traders myth” I disagree. “Even the dealers with lowest profitability numbers disprove that statistic” No they don’t! I’m sure you know your own numbers inside out, but the fact that 23% of FXCM LLC’s clients were apparently profitable in Q3 2010 is a… Read more »
Jim,
We’ve analyzed thousands of accounts over a period of more than a year and the statistics are pretty similar – about 25%-30% of the traders are making money in forex. These figures would have been increased to around 35% if the broker took 1 pip less by the way.
Having said that, when we look for trade leaders, we look for people that are consistently profitable and carry relatively low risk we find that it’s below 0.5% of the traders that qualify. Being profitable as a whole is not enough to call yourself a successful trader.
— Asaf.
Jim,
We’ve analyzed thousands of accounts over a period of more than a year and the statistics are pretty similar – about 25%-30% of the traders are making money in forex. These figures would have been increased to around 35% if the broker took 1 pip less by the way.
Having said that, when we look for trade leaders, we look for people that are consistently profitable and carry relatively low risk we find that it’s below 0.5% of the traders that qualify. Being profitable as a whole is not enough to call yourself a successful trader.
— Asaf.
Paul, can you just be direct and explain how do you calculate the numbers? what accounts do you include etc? i believe this will answer all the questions.
Paul, can you just be direct and explain how do you calculate the numbers? what accounts do you include etc? i believe this will answer all the questions.
Hi Asaf,
Just checking if I’ve understood those figures correctly.
25%-30% of the traders you monitor are profitable (where profitable means making $0.01 or more profit over a 12 month period?)
In your estimation, based again on the results achieved by the traders you monitor, only 0.5% have got what it takes to achieve the (almost mythical?) status of being able to “give up the day job” and earn a living from trading forex over a period of several years, or even decades?
Have I got that straight?
Jim
Hi Asaf,
Just checking if I’ve understood those figures correctly.
25%-30% of the traders you monitor are profitable (where profitable means making $0.01 or more profit over a 12 month period?)
In your estimation, based again on the results achieved by the traders you monitor, only 0.5% have got what it takes to achieve the (almost mythical?) status of being able to “give up the day job” and earn a living from trading forex over a period of several years, or even decades?
Have I got that straight?
Jim
Jim, 25%-30% are profitable over the course of a year which means their overall G&L was positive. As for the 0.5% – these are people that we select to the Trade Leader program – means that they not only have to be profitable but they need to be consistently profitable which means they make money month over month. They also need to have low volatility meaning that they can’t lose too much (more than a few percentage) in one day and also can’t make too much in one day. This does not mean that these people can quit their day… Read more »
Jim, 25%-30% are profitable over the course of a year which means their overall G&L was positive. As for the 0.5% – these are people that we select to the Trade Leader program – means that they not only have to be profitable but they need to be consistently profitable which means they make money month over month. They also need to have low volatility meaning that they can’t lose too much (more than a few percentage) in one day and also can’t make too much in one day. This does not mean that these people can quit their day… Read more »