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Are forex trading contests good for you?

Jul 20 2017
By
Jonathan Smith

You may nor have heard about them, if you have been living under a rock, but there are many forex trading contests nowadays. They are offered by brokers, as a means to attract new clients. If you have little trading experience and you hear there will be a contest, where you can win trading capital, without risking a penny, you would be an idiot not to participate, right? Maybe not.

 

What are they?

A trading contest is exactly what is sounds like – a competition, in which traders face-off to determine who is better. We will focus on their details later, but first lets look at it from a conceptual point of view. 

 

If you participate in such an event, you would be comparing your skills to those of the other participants. If trading at your own leisure wasn’t hard enough, now you have to worry about other people’s performance. This can increase the psychological pressure, which is very high in normal trading, even further. 

 

On top of that, depending on the duration of the contest and the market moves you may have to keep refreshing the score page. This may not sound like a lot, but it will distract you, which may have an impact if the contest is short-term.

 

Furthermore, seeing how others are performing better than you in the same market conditions may hurt your ego. Every trader is a bit egocentric – the mere fact you think you can trade, let alone compete against others, means you believe in your abilities. The feeling of disappointment can be greatly multiplied in such an event.

 

Types of forex trading contests

 

There are many types of trading contests. Some are sprints, where scalpers measure their skill, while others are investment marathons. Here is a breakdown of some of the factors, which determine the types of forex competitions:

 

Depending on the time

 

So many contests currently available, you can find whatever suits you. From daily, weekly, monthly to somewho last even longer. The time commitment is obviously important, but obviously the strategic approach will have to change for the different types of contest. A daily or even weekly event will attract a lot of scalpers. Some of them wil be able to earn amazing returns in a seemingly flat market. On the other hand the best performing traders in a competition, with a longer duration will most likely be the more conservative traders.


Depending on the account requirement

 

Most contests only require demo accounts. This is due to their primary objective – the broker acquiring new clients. It goes without saying, but a company would attract a lot more people if the contest does not require having a real account. Even if a very small percentage of all participants then decide to create real accounts, this may work-out fine. 

 

The major thing to note is that in demo contest, the wining traders achieve amazing results. This is done because they do not have any fear of losing, while the potential reward is real. Returns in the thousands of percent per week are not unheard of. Traders will either always “gear-up” to the max (use maximum leverage) if they trade manually or use a dangerous automated system, like a grid or martingale (if this is allowed in the contest). This is dangerous because, it may create the believe this is how you should trade later on, with a real account. You may be laughing it off now, as you are reading it, but this is the truth. Similar things often affect us on a subconscious level.

On the other hand, some brokers, like FXTM, occasionally offer contests for holders of real accounts. Although some people may still trade as aggressively as they would in a demo-contest, their number will be much lower. The real maniacal demo competition “stars” do not enter such events. If they trade their real funds in such a manner, they probably can’t keep a live account … “alive” for long. Such trading can only create the potential for a massive crash.

 

 

 

 

Depending on the rules

 

Different contests have different rules. Other than the type of account required for participation, the other major rules you should look at ate: “exactly how is the winner going to be determined?” and “are automated systems allowed?”. 

 

On the subject of determining a winner, most contests only focus on the returns gained for the duration of the event. As mentioned earlier, especially when this is combined with demo-trading, the contest could turn into an overly aggressive bloodbath. This type of trading is not recommended with real money , as it essentially becomes gambling. The more sophisticated competitions, which often require a live account, may take into account other factors, such as the maximum drawdown, risk per trade and even your overall strategy. Although these type of events are much rarer, they provide a better paling field for serious traders.

 

When it comes to automated trading, it is worth mentioning, it can set a much higher bar for the participants. Short-term scalping systems can perform better than humans, if the market provides suitable conditions. They are not often used (at least with as aggressive settings) on live accounts, as the likelihood of an account blow-up is quite high. However, if the reward is worth it, or the risk is non-existent (i.e. it’s a demo contest), such strategies rule. If you are an EA enthusiast, by all means go for a daily demo contest, but a manual trader doesn’t stand much of a chance.

 

Should you participate?

 

To summarize, most trading contests aren’t worth your time. They will most likely only frustrate you and possibly create bad habits. This is the most important point we want to highlight again, which is especially important for new traders – do not trade your real money the same way you trade in short-term demo contests. In order to succeed in such events, one must gamble, either by trading with an aggressive automated system, or by placing manual trades, with an incredibly high leverage ratio. While this type of trading is “fun”, it always leads to serious losses in the long term. Here is a list of factors you should look at when comparing trading contests:

 

Positives Negatives
Long-term (a month or ideally more) Short-term (weekly or daily)
Real money accounts only Demo accounts for all participants

Winner determined by a complicated system

(including risk parameters, restriction on the size of a position and so on)

Winner determined solely by return, in %
No automated trading allowed All trading styles allowed 

 

TAGS: forex  trading  contest  competition  forex trading contest  forex trading competition 
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