Trading contests: a false reality
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There are many trading contests on the financial markets. These contests are organised by brokers, independent organisations or websites. Is there genuine interest? What are the dangers of trading contests for individuals?
Novice traders are usually big fans of trading contests. These contests are a powerful marketing tool to attract the individuals’ attention. Brokers regularly use them to promote their brand, websites to generate traffic, and event organizers to bring people to their show.
Among the most famous contests we can mention the RTFX broker currency championship, the trading competition on the Zone Bourse "Trading Masters" website, or the trading duels organised at the trading fair (gold trophy for technical analysis).
To decide between the different participants in a trading contest, the only criterion taken into account is performance. The better you perform, the more likely you are to win a prize. Many individuals are amazed by the results that the top runners can achieve. Winning a trading contest is a good way to build a good reputation in the financial markets, to be listened to and recognized by individuals.
However, winning a trading contest does not mean that you are a good trader. It just means that you have performed better than other participants over a given period of time. But what was your risk? With trading, any return is associated with a level of risk. If a trader tells you "I made 20% per year", that doesn't mean anything if he doesn't tell you his drawdown and the leverage that he used.
Let’s take an example: Imagine a 1st trader who makes 20% per year with a drawdown (his risk) of 15% and a 2nd trader who makes 10% per year with a drawdown of 2%. The best trader is the 2nd trader, his risk/return ratio is much better. He risks a small portion of his portfolio to generate returns. The first trader makes more but his risk is very high. In a trading contest, the best trader would be the 1st trader. However, if we compare the 2 traders at an equivalent level of risk, the 2nd is much better.
Trading contests therefore have no legitimacy in determining a trader’s worthiness.
It’s very simple to win a trading contest. All you have to do is take as much risk as possible on one or more trades and cross your fingers in the hope that your trades win. Complying with the usual trading rules (risk management, etc.) is totally useless.
I remember an Activtrades trading contest that I did with Vincent in 2010. This was a real account contest lasting a month. During the first 3 weeks of the competition, we applied strict money management using the minimum position size for each position. We had started an account with €1,000. After three weeks, I think we were in the Top 10, but despite our 9% return, we were far from top of the ranking. Caught in the game, we decided in the end to try a poker move to get ahead. We used the maximum leverage allowed and of course we razed our trading account. It's heads or tails in these cases. If the trade had been a winner, we would have won the contest.
Would we have been good traders? Of course not, we would have just been 2 fools who risked their entire trading account to win the trading contest. This mentality is common to all participants.
With trading contests, almost all the traders raze their trading accounts. After that, statistically, there are always those who are lucky and win first prizes.
A trading contest can be held on a demo account or a real account. On a demo account, there is no real interest. There are generally 3 figure returns. The winner is the one who is lucky enough to win his trades using maximum leverage.
With a real account, you might think that trading contests would be interesting. Effectively, participants risk their money and the risks taken are necessarily lower. Our example on the Activtrades contest proves that this is not the case. For the majority of contests on real accounts, participants can place however much they wish (although there is a minimum). All participants therefore have a different sized account. In this type of contest, the winner is always the one who uses the most leverage and is lucky. This simply adds a condition: you have to be able to afford to lose the money invested (which was, for example, our case during the Activtrades contest).
On real accounts, there are also contests that require the same amount of investment for each participant. This amount is generally high. An example is the gold trophy for technical analysis organized each year at the trade fair, where the admission ticket is €50,000. Is it the best trader who wins in this type of contest? The answer is still no!
With this type of event, no trader razes his trading account but you are forced to take risks to pass the qualification steps. Losing traders all recognize this, they take abnormal risks. It should be noted that in many cases, the money does not even belong to the trader but to a broker who wants to see the name of a "star" associated with his brand. The broker sets a loss threshold that the trader must not exceed. Not to mention the fact that the trading contest only takes place over a few hours. (A trader’s quality is judged over the long term, right??).
In a trading contest, participants do everything that should not be done. They trade using high leverage, without any risk management or even applying a specific trading strategy. To win a trading contest, you must therefore do the opposite of everything that is recommended on serious trading sites and forums. As a result, novice traders believe that this is what trading is, that it is a giant casino.
When you look in detail at the results of a trading contest, you can see that most traders have razed their accounts. Only a handful of traders end up with a positive result. There is tangible evidence of these figures, for example 9/10 of Forex traders lose.
These trading contests distort the reality of trading. If you take all the trading contests (which mostly take place over a month), all the winners make 2 figure returns with a real competition and 3 figure returns with a demo. Who really makes 20% a month????? No one except the boasters who one day or another end up razing their trading account.
As a result, novice traders all believe that you have to have this kind of result. When you tell a new trader that if he makes 10% at the end of the year, it's already a good result, he laughs in your face. Trading contests are one of the reasons why novice traders believe that you can make a fortune in the financial markets or at least double your capital. The disappointment is great when they discover the reality of the trading world, made of risk management, rigour, discipline, structured trading strategy, etc.
Why organize a trading contest?
Novice traders are usually big fans of trading contests. These contests are a powerful marketing tool to attract the individuals’ attention. Brokers regularly use them to promote their brand, websites to generate traffic, and event organizers to bring people to their show.
Among the most famous contests we can mention the RTFX broker currency championship, the trading competition on the Zone Bourse "Trading Masters" website, or the trading duels organised at the trading fair (gold trophy for technical analysis).
Are the winners of trading contests the best traders?
To decide between the different participants in a trading contest, the only criterion taken into account is performance. The better you perform, the more likely you are to win a prize. Many individuals are amazed by the results that the top runners can achieve. Winning a trading contest is a good way to build a good reputation in the financial markets, to be listened to and recognized by individuals.
However, winning a trading contest does not mean that you are a good trader. It just means that you have performed better than other participants over a given period of time. But what was your risk? With trading, any return is associated with a level of risk. If a trader tells you "I made 20% per year", that doesn't mean anything if he doesn't tell you his drawdown and the leverage that he used.
Let’s take an example: Imagine a 1st trader who makes 20% per year with a drawdown (his risk) of 15% and a 2nd trader who makes 10% per year with a drawdown of 2%. The best trader is the 2nd trader, his risk/return ratio is much better. He risks a small portion of his portfolio to generate returns. The first trader makes more but his risk is very high. In a trading contest, the best trader would be the 1st trader. However, if we compare the 2 traders at an equivalent level of risk, the 2nd is much better.
Trading contests therefore have no legitimacy in determining a trader’s worthiness.
How to win a trading contest?
It’s very simple to win a trading contest. All you have to do is take as much risk as possible on one or more trades and cross your fingers in the hope that your trades win. Complying with the usual trading rules (risk management, etc.) is totally useless.
I remember an Activtrades trading contest that I did with Vincent in 2010. This was a real account contest lasting a month. During the first 3 weeks of the competition, we applied strict money management using the minimum position size for each position. We had started an account with €1,000. After three weeks, I think we were in the Top 10, but despite our 9% return, we were far from top of the ranking. Caught in the game, we decided in the end to try a poker move to get ahead. We used the maximum leverage allowed and of course we razed our trading account. It's heads or tails in these cases. If the trade had been a winner, we would have won the contest.
Would we have been good traders? Of course not, we would have just been 2 fools who risked their entire trading account to win the trading contest. This mentality is common to all participants.
With trading contests, almost all the traders raze their trading accounts. After that, statistically, there are always those who are lucky and win first prizes.
Is there a difference between a demo and a real trading contest?
A trading contest can be held on a demo account or a real account. On a demo account, there is no real interest. There are generally 3 figure returns. The winner is the one who is lucky enough to win his trades using maximum leverage.
With a real account, you might think that trading contests would be interesting. Effectively, participants risk their money and the risks taken are necessarily lower. Our example on the Activtrades contest proves that this is not the case. For the majority of contests on real accounts, participants can place however much they wish (although there is a minimum). All participants therefore have a different sized account. In this type of contest, the winner is always the one who uses the most leverage and is lucky. This simply adds a condition: you have to be able to afford to lose the money invested (which was, for example, our case during the Activtrades contest).
On real accounts, there are also contests that require the same amount of investment for each participant. This amount is generally high. An example is the gold trophy for technical analysis organized each year at the trade fair, where the admission ticket is €50,000. Is it the best trader who wins in this type of contest? The answer is still no!
With this type of event, no trader razes his trading account but you are forced to take risks to pass the qualification steps. Losing traders all recognize this, they take abnormal risks. It should be noted that in many cases, the money does not even belong to the trader but to a broker who wants to see the name of a "star" associated with his brand. The broker sets a loss threshold that the trader must not exceed. Not to mention the fact that the trading contest only takes place over a few hours. (A trader’s quality is judged over the long term, right??).
Trading contests: a danger for novice traders
In a trading contest, participants do everything that should not be done. They trade using high leverage, without any risk management or even applying a specific trading strategy. To win a trading contest, you must therefore do the opposite of everything that is recommended on serious trading sites and forums. As a result, novice traders believe that this is what trading is, that it is a giant casino.
When you look in detail at the results of a trading contest, you can see that most traders have razed their accounts. Only a handful of traders end up with a positive result. There is tangible evidence of these figures, for example 9/10 of Forex traders lose.
These trading contests distort the reality of trading. If you take all the trading contests (which mostly take place over a month), all the winners make 2 figure returns with a real competition and 3 figure returns with a demo. Who really makes 20% a month????? No one except the boasters who one day or another end up razing their trading account.
As a result, novice traders all believe that you have to have this kind of result. When you tell a new trader that if he makes 10% at the end of the year, it's already a good result, he laughs in your face. Trading contests are one of the reasons why novice traders believe that you can make a fortune in the financial markets or at least double your capital. The disappointment is great when they discover the reality of the trading world, made of risk management, rigour, discipline, structured trading strategy, etc.
