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# Game Theory & the FXCM Contest

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

1. ### SomeYoungGuy

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. ### SomeYoungGuy

Friends working together? A finance class? A good Catholic family?

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: http://www.fxcm.co.uk/automated-forex-trading-contest.jsp

Let me know if you have any questions.

ET IS FREE BECAUSE OF THE FINANCIAL SUPPORT FROM THESE COMPANIES: