Back during the .com bubble, the online (stock) brokers were famous for their creative commercials, that playfully suggested that anyone could easily make a fortune trading stocks online. We know how that worked out.The online brokers still advertise, but the commercials tend to be a bit more conservative.
Taking their place are the ads from the online currency brokers — some of which are downright ludicrous. The one where they guy talks about what currency he trades based on what Bernanke had for lunch stands out.
- Three quarters of people who trade with online currency firms lose money. 75%. That data comes from the firms themselves as they must now report this information to the CFTC.
- Forex firms are seeing client attrition rates of between 15-25% a year versus only 5% from traditional online stock brokerages.
- Retail players are trading through brokerages whose very business model is to act as a counterparty to them. Yet the marketing is predominantly of a “let us help you diversify into currencies” nature. Nice.
- Industry-standard leverage levels, down from 100-to-1 to a still-absurd 50-to-1 automatically disqualify Forex as an “asset class” for investors. The more suitable categorization for this activity is gambling; it is more akin to OTB or the casino than to stocks and bonds.
The casino analogy is actually quit apt. Click here to see all the similarities between currency trading and online poker.