Abstract

https://ssrn.com/abstract=2711214
 


 



The Retail FX Trader: Random Trading and the Negative Sum Game


Chris Davison


Nottingham Trent University

January 5, 2016


Abstract:     
With the internet boom of early 2000 making access to trading the Foreign Exchange (FX) market far simpler for members of the general public, the growth of ‘retail’ FX trading continues, with daily transaction volumes as high as $200 billion. Potential new entrants to the retail FX trading world may come from the recent UK pension deregulations, further increasing the volumes. The attraction of FX trading is that it offers high returns and whilst it has been understood that it is high-risk in nature, the rewards are seen as being commensurately high for the ‘skilled and knowledgeable’ trader who has an edge over other market participants. This paper analyses a number of independent sources of data and previous research, to examine the profitability of the Retail FX trader and compares the results with that of a simulated random trading models. This paper finds evidence to suggest that whilst approximately 20% of traders can expect to end up with a profitable account, around 40% might expect their account to be subject to a margin call. This paper finds a strong correlation between the overall profitability of traders and impact of the cost of the bid-ask spread, whilst finding little if any evidence that retail FX traders, when viewed as a group, are achieving results better than that from random trading.

Number of Pages in PDF File: 16

Keywords: trading, trader, FX, Forex, Foreign, Exchange, Random, Negative, game

JEL Classification: F31, N20, I22, G29


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Date posted: January 6, 2016  

Suggested Citation

Davison, Chris, The Retail FX Trader: Random Trading and the Negative Sum Game (January 5, 2016). Available at SSRN: https://ssrn.com/abstract=2711214 or http://dx.doi.org/10.2139/ssrn.2711214

Contact Information

Chris Davison (Contact Author)
Nottingham Trent University ( email )
Burton Street
Nottingham, NG1 4BU
United Kingdom
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