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Forex trading is a loser game? a simple calculation

For newbies understanding(Skip this part if you are already trading)

How does an individual able to participate in this financial market?
We perform trades via a company, or known as Broker/Securities Dealer/FX broker
When you want to BUY also known as LONG
When you want to SELL also known as SHORT
Once you opened an account with broker, you need to deposit a sum of money
In forex trading, “unit” is commonly used, you need to decide how many units you want to execute
100,000 unit is 1 standard lot
10,000 unit is 1 mini lot
1,000 unit is 1 micro lot

Forex Trading comes with Bid Price and Ask Price
For example, EURO vs US Dollar pair (EUR/USD)
Lets say current EUR/USD price is 1.08740 / 1.08745, which is Bid-Price/Ask-Price
if you want to SELL/SHORT = refer Bid Price (at lower price) (price on the left side)
if you want to BUY/LONG = refer Ask Price (at higher price) (price on the right side)
you need to calculate what is the required amount before can execute a trade
Common broker has minimum amount required to open a trade, which is 1000 unit a.k.a 1 micro lot
Each product/trading instrument in the trading account has a margin % percentage requirement
For eg, for trading EUR/USD pair, margin requirement is 2.25%

*removed- incorrect calculation

Conclusion :

(Future) 1.08750 / 1.08755 (+10 pips)
(Current)1.08740 / 1.08745
(Future) 1.08730 / 1.08735 (-10 pips)

close with +10 pips profit = 0.05 cents profit
close with -10 pips loss = 0.15 cents loss
there is no edge trying to win in forex market, if you lose 1 trade, need 3 winning trade just to get back even in your trading account balance. also paying spread once again (5+5 = 10 pips) when you want to close position.
assuming your take profit/Stop loss level is the same. what are your thoughts?

Related source : Binary option
https://www.thestar.com.my/business/business-news/2016/06/18/binary-options-are-a-scam/

No, I didn’t. And with all respect for your work your example is nonsense. Not because commission is not taken into account, but:

The fatal error there is that pips on currency pairs like EURUSD are calculated on 4 digits and not on 5 digits and 1 pip is 10 Cent and not one.

That makes a huge difference for newbies trying to understand how Forex works, reading about a 10 or 20 pips take profit. The information published is completely wrong.

In your examples you make 1 Pip and not 10 with a spread of 0.5 pips and not 5 pips.

Alternatively show me a trader who sets a tp on 1 pip. On most platforms that is impossible.

To make 10 pips - which is 1 $ in your example - the market has to run to 1.08840 / 1.08845.

Please correct your calculations.

If you took them from the link, it just shows that there is someone who has an opinion but no knowledge :frowning:

thanks guess i got the calculation wrong. will revise after re-done the calculation

2 Likes

Pair : EUR/USD 1.08614(Bid) / 1.08616(Ask)
Margin : 2.25%
Spread : 0.2 pips[rounded] (1.08616(Ask) - 1.08614(Bid) = 0.000019)
Direction : BUY/LONG
Entry price : 1.08616(Ask)
Trade size : 1 micro lot (1000 Unit) | 0.01

BUY/LONG @ 1.08616
1000 Unit x 1.08616 = 1086.16
1086.16 x 2.25% = 24.4386
Margin required : USD$24.44 (rounded)

Hypothetical A.)---------------------------------------------------Bid--------Ask
EUR/USD went up +0.01000 (100pips) after 1 hour 1.09614 / 1.09616
you decided to Close. Need to SELL exactly 1000 Unit

*Latest Bid Price - Entry Price [Direction:BUY]
1.09614 - 1.08616 = 0.00998 (99.8 pips)
0.00998 x 1000 Unit = USD$9.98 profit

Hypothetical B.)------------------------------------------------------Bid--------Ask
EUR/USD went down -0.01000 (100pips) after 1 hour 1.07614 / 1.07616
you decided to Close. Need to SELL exactly 1000 Unit

*Entry Price - Latest Bid Price [Direction:BUY]
1.08616 - 1.07614 = 0.01002 pips
0.01002 x 1000 Unit = USD$10.02 loss

---------------Bid--------Ask
(Future) 1.09614 / 1.09616 (+100 pips)
(Current)1.08614 / 1.08616
(Future) 1.07614 / 1.07616 (-100 pips)

Conclusion, Ratio : 499 : 501 (https://www.calculatorsoup.com/calculators/math/ratio-simplifier.php)
Made +100pips (1micro lot) = USD$9.98 profit
Lose -100pips (1micro lot) = USD$10.02 loss

is the calculation correct?

2 Likes

Not 100% correct, but your concept that spread increases the odds in favor of the market is correct.

If you buy, you get the Ask price, as you mention, but your price of reference is going to be the bid price, that is why you start in negative as soon as you open the position.
If you set a take profit of 100 pips, it means that you set that the bid price needs to reach 1.09616, not the ask price. So, at the end, you are going to get 100 pips, not 99.8.
It only means that it is a bit harder to reach the take profit than the stop loss, because the price needs 99.8 pips to reach the SL, while 100.2 to reach the TP.

First and second examples, 1 pip SL/TP against 100 pips SL/TP, show how spread has a bigger impact when you set tight SLs.
Considering the same RR ratio, scalpers need to achieve a higher win ratio than position traders, although, if they find their edge, they are usually competitive on the profit% by achieving a higher number of positions.

Is Forex Trading a loser game? If it was driven only by luck, like the roulette, yes, it would be a loser game. If your skills can compensate that small but important % eaten by spread and commissions (and SWAP for some traders), it’s not anymore a loser game.

4 Likes

Calculation looks correct for what you want to show.

In reality here you have to subtract a commission of 5 or 6 Cent for each trade, which also cut the profit of each trade and makes the ratio worse.

2 Likes

i’d like to add something other than the calculations, for now we’ve seen quite some and it looks like the number 0.02% in favor of the market due to spread initially validates the thread-starter subject and question.

however, if that was true then how come there are those who consistently win vs the market? perhaps it is an anomaly then again what if it is not?

not to spoil any of your experiments but to merely point out, i’ve tried closing a position in profit and trailing it via many different techniques. given “the correct” parameters they both provide somewhat the same in terms of profits.
there is one big differing thing though, if we close a position then it cannot grow any further. not only in theory, that action then is an aggressive one. i’d like to contend that it is not the best course of action then since my experiments with trailing gives the same results while still keeping the possibility of further growth.

what i’m saying is that there probably are several such techniques that gives a trader enough edge to overcome the initial x% edge that the market has. i say keep experimenting and thinking, you may find something interesting.

2 Likes