Game Theory & the FXCM Contest

Discussion in 'Forex Brokers' started by SomeYoungGuy, May 4, 2010.

  1. Here's my take on Mr. Yanhui's 970.43% gain in the $25,000 trading contest on FXCM.

    Now I may be completely wrong on how the contest was won, and I really hope I am, but we can use game theory to prove that his 970% gain was not really that impressive considering the stakes given by FXCM. I think I can do better.

    The Contest
    The rules state you must begin the month with $500USD in your account. In microlot forex, one lot is $1000, so the EURUSD is $0.10 per pip. FXCM allows 100:1 leverage.

    Let's say that I have $8000 to allocate to this strategy. I open 16 accounts, each with the required $500. You'll see why in a minute.

    The Strategy
    On the first day of the contest, in 8 of my accounts I go full long the Euro, maxing out my leverage by taking 50 microlots in each account. In the other 8 accounts I go full short Euro, selling 50 microlots in each. 50 lots x $0.10 per pip = $5.00 per pip. I will double or blow out the account after the Euro moves 100 pips.

    I wait until it makes that 100 pip move, then immediately reverse my position in half of my remaining accounts. I do this 3 more times, and I am left with one account, with a balance of $8000. Here's the breakdown:

    day 0
    16 accounts, $500 each

    end of 1st 100 pip move
    8 accounts, $1000 each

    end of 2nd 100 pip move
    4 accounts, $2000 each

    end of 3rd 100 pip move
    2 accounts, $4000 each

    end of 4th 100 pip move
    1 account, $8000

    The Payoff
    Because I started that final remaining account with $500, and I end the month with $8000, that's a 1500% increase. I understand we lose a little on each trade due to the spread, FXCM reports that a typical spread for the EURUSD is 2.3, so let's round that up to 3 pips. We would have lost 3 pips on each of 4 moves, so our actual ending balance will be about $6800. That's still a 1260% increase, far enough to win the contest.

    We lost just over a grand to the spread, but winning the contest nets us $25k. That takes the sting out of it. And next month, if you don't think that 1260% is going to win, just start with twice as much capital funding twice as many accounts and do just one more trade to double your return to ~2500%.

    The Rub
    Beware, the spread has gobbled up the prize money by the time you're funding 256 accounts with a total of $128,000 and 8 double-or-nothing trades. You will however be able to book a nice 19,000% return if you can get the Euro to move a combined 800 pips for you.

    I will be happy to answer any questions if you would like to put this strategy into practice. But I'm certainly not going to risk my own capital. :)
  2. Gcapman


    Only 1 account per trader is allowed
  3. Friends working together? A finance class? A good Catholic family?
  4. Jason Rogers

    Jason Rogers ET Sponsor

    FXCM is holding an automated forex trading contest which begins October 17. Contestants will use FXCM's Strategy Trader platform to automate their forex trades during a seven week trading period. Registration is now open so you can register a demo and start coding your strategy.

    The contest is a demo contest with prizes for 1st - $10,000; 2nd - $7,000; and 3rd place - $3,000.

    Important Dates:

    September 7: Contest registration opens. Begin coding and testing your automated strategy to prepare for the first day of the contest.

    October 15: A starting balance of $1,000 will be used for the official contest. Therefore, at the close of trading on October 15th contest demo accounts will be automatically reset to $1,000 and any open positions will be settled.

    October 17: Contest officially begins when trading opens Sunday October 17th. Participants should activate their automated strategies for trading. There is a leaderboard on the contest page which will update hourly with the current leaders.

    December 3: Contest trading period ends. Final equity levels will be recorded and prizes will be awarded to the top three contestants

    FAQ: All information including FAQ's can be found on the contest website:

    Let me know if you have any questions.