I had been checking the results of January 2008 competition and I believed that in fact, a competition is a money making machine, largely when the broker trades.
Assess the snap shot below:
Well, see how beginning the 7th, all traders are under 100% profit.
Starting 10th, they're under 60% profit.
Assuming that the broker is trading gainst you.
Let's try to evaluate the 'cost' of the competition:
Taking the general concept that over 90% of traders drop money, and since there is 237 participant, 90 percent will means that over 213 of those traders are losing cash.
We can safely enough assume that we've got 200 traders that are losing money, and probably 50 of them have blown their account (We can see in the attachment that the last ten have lost more than 99% of the account), so just 37 (or less) are winning cash.
Per the principle, you need just 500$ in your live account to go into the contest. I think that the traders that is going to be in the up with more than 200% return in less than a month won't be risking over this sum. And let's assume that the traders that have lost all their balance have just risked 500$.
So the broker is going to have to cover (since they're trading the opposite side) in the end of the competition:
For the first ten participants:
4.10*500 2.70*500 1.90*500 1.30*500 1.30*500 1.20*500 0.80*500 0.70*500 0.60*500 0.60*500 = ~20,000 $
For the 27 other supposed positive profit if considered at 30% profit:
27*0.3*500 = ~4,000 $
Therefore the overall 'cost' of the match is 6,000 20,000 4,000 = 30,000 $
Let's attempt to evaluate the 'earnings' of the competition:
200 traders are losing cash.
We see in the broker statement that the past have lost over 99% of the account. We may safely assume that 50 trader has lost more than 90 percent, and let's assume that 150 has lost a mean of 50%, we would have an 'income' of:
50*500 150*250 = 25,000 37500 = 62,500 $
Therefore the return from the competition would be something similar to:
62,500 - 30,000 = 32,500$ disperse times all the trade done.
Of course that is just a simulation, but I have the impression that the broker is having more from that money making machine 'competition', as I tried to put my entire calculation on the safe side.
Well, as I seen in the 6 months back published statements, the number of contestant is increasing every month... Just extrapolate in couple months with 500, 1000 participants and maybe more...
it's no surprise actually. The broker's done their research and they know these traders arrive in wiht measely $500 and risking way too much. The produce an environment where people need to contend with one another to reach hundreds percent return to triumph.
It's fueling the greed of traders along with instilling terrible trading habits. It's a visciuos marketing cycle. New fish will keep coming in...
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