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Foreign Exchange

FX news: Citi’s retail survey

We frequently get sent surveys focused on the working methods of retail traders and they are seldom illuminating. But it is worth paying some attention to the one published this week by CitiFX Pro

We frequently get sent surveys focused on the working methods of retail traders and they are seldom illuminating. But it is worth paying some attention to the one published this week by CitiFX Pro, Citi’s online FX trading platform for active individual and small institutional players.

The old, and partly apocryphal, method of managing trades from retail players – by assigning them to the ‘B’ book so that they can eventually cut themselves out at a loss – is probably no longer wise, if it ever was. It seems the prime method by which retail providers differentiate themselves – other than spread or commission – is by offering client training. Assuming the training isn’t a heap of baloney, the retail sector must be getting wiser and wiser.

And so it seems. The survey reveals that a majority of retail traders trade between one and five currency pairs; EUR/USD is the most popular pair, traded by 51% of respondents. More than 80% of traders identified their main purpose in trading as “speculation”; and only 8% as “hedging”. No surprises there.

The revelation in the report is that more than half (53%) of traders employ a combination of fundamental and technical strategies; 36% use a technical strategy “involving tracking trading patterns”; and only 8% use a strictly fundamental strategy. Presumably the other 3% toss a coin or use the time-honoured method of deciding whether to buy or sell based on the number of construction cranes that can be seen from the office window.

 

The survey received more than 3,000 responses via FX websites FXstreet.com, ActionForex, ForexPros and ForexTV, revealing the geographical breadth of the retail market: 23% were located in the US, followed by 8% in the UK and 7.5% in India. Among the more exotically located respondents: there were three players in Afghanistan, 12 (0.44% of the total) in Albania and even one in Antarctica; 30 players (1.1%) in Bulgaria, 70 in Indonesia and a whopping 91 in Malaysia. Iran had 26 respondents but Iraq only two.

I was most intrigued by the responses to the question: “What has been your performance in the last 12 months?” Apparently: “Traders report largely positive net performance over the last 12 months”. A stunning 20.5% claim a return on capital of more than 50%, while only 26.8% own up to having made a loss. Impressive indeed – until you remember that survivorship bias makes these headline-grabbing numbers a little less, well, headline-grabbing.

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