Forex broker profitability

Is a quarterly report that shows how well or how badly a brokerage firm is doing in that quarter of a calendar year it is used for so many purposes for rating, investment decisions & other technicalities? It shows the number of active trader under a broker, volatility, number of accounts, profit & loss figures. The Bollinger Band is often used to estimate volatility it was developed by John Bollinger this indicator is used to show & obtain the volatility of a currency from the norm. You can soon spot overbought and oversold currency pair as volatility rises and trade into them. The middle band is a simple moving average and you can buy and sell back to it in strongly trending markets as this area indicates value. 

Volatility was back in the fourth quarter of 2017 in the forex industry. With volatility come opportunities but also a greater risk for losses. During the just-ended quarter, weighted total customer averages show that 35.3% of US forex traders were in the black, compared to 37.8% in Q3 2014. On a broker weighted calculation, the average broker showed the profitability of their clients at 35.6%, a 1.7% drop from Q3 2017’s 37.3% level.

The findings appear to show that despite greater opportunities for large profits, retail customers performed worse in a highly volatile environment. Weighted customer profitability peaked at 39.5% during the slow Q2 period and has since fallen in back-to-back quarters as volatility has increased.

Also reported is a contraction in the US retail forex market to below 90,000 active traders, the lowest level since Forex Magnates began to track these figures in Q1 2011. Overall, during the quarter, active traders declined by 6,491 to a total of 89,162, affecting the US market has been an exodus of brokers from the country.

During Q4, affecting the total active trader's figure was the sale of one of the top MetaTrader 4 accounts, the broker’s customers in the report declining by 5,345 traders to 1,801. Interestingly, those lost accounts didn’t have much impact on some of the competition where active traders grew, but by only 358, for a total of 26,975 accounts. It is known that marketing IBFX its positive features and even introducing lower spreads can be done to attract those new clients. The lack of meaningful account growth may have been responsible for the lost accounts or were non-US traders that were transferred to other regulated units of the broker. Hints of the answer may be revealed when reports of Q4 2017 financial results are released, which are now much awaited following the disclosing of Swiss franc volatility-related losses and new financing from Leucadia National Corporation.

Returning to the profitability side of the report, once again, Interactive Brokers topped the list of having the most profitable percentage of traders in the US at 44.1%.  As reported in the past, Interactive Brokers average account sizes are well above those at other retail brokers, and their customers are, as well, more risk-averse.

Looking ahead, with both Interactive Brokers and the competition having reported large losses by their forex trading clients from last week’s move in the Swiss franc, it will be interesting to see how the volatility affects the overall Q1 2015 profitability report.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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