QUESTION:
If 90% lose money, how can the commodities trading market exist / Ken Roberts

"Hi Courtney.... I read a small bulletin response from you on the Internet that informed a person that 90% of participants in commodities trading lose money. I am looking at the Ken Roberts Co. stuff, and am extremely skeptical and careful. Heavy risk is something I do not want to get into. But, if 90% of participants lose money, what on earth keeps the Commodities Market in existence? Stupidity? Or is it simply unprepared people operating out of ignorance? Is there truly a way to limit risk down to near null and still make any money in Commodities? I am no fool, and I know Ken Roberts is making a pile of money selling his material ... not necessarily in commodities trading. If there are any hard documented independent studies on his actual commodities performance I would certainly appreciate being able to find it and read it. Can you help there? I will not buy his material or take him seriously without such information, and I will not listen to testimonials that come from his sources ... too many scams out there and too many "ringers" in that game. The hype is nice, but I want hard facts. Very best wishes, Jim"

ANSWER:
Back in the 1960's, the predecessor to the CFTC, the Commodity Exchange Authority, did a study of a brokerage house clients, Merrill Lynch, if memory serves. They found that 90% lost money, 5% broke even and 5% made money. Subsequent studies have done little to change that ratio.
Futures markets exist for hedgers to transfer risk to speculators. Virtually all futures contracts have over 50% of their open interest in the hands of commercials. Pork bellies is the only significant exception. Without commercials there can be no futures market.
Notice also that commercials can be on both sides of the market. You can have long and short commercials. The gap has to be filled with speculators.
Perhaps the real question is: why does the public continue to trade when the odds are so against them? I get calls at CTCR all the time from new commodities traders or people thinking of starting commodities trading. I virtually always tell them NOT to trade futures. It is simply one of the hardest ways to make money. Small speculators continue to speculate because they think that they can make big money quickly. Why do people buy Lottery tickets? Everybody knows that the odds are against them!
I wrote an issue of CTCR totally about small speculators called "Why You Lose and What You Can Do About It". In this report, I discuss why most traders lose money. I believe that the answer is mainly psychological.
Is there a way to reduce risk and still make money? Yes. But I still don¹t recommend that you or anyone else trade futures. For example, you can trade the smaller contracts such as hogs or use options. I even wrote a short article on trading small amounts of money called "Trading With Small Amounts of Money".
As for Ken Roberts, we reviewed his basic course and gave it a poor review. I believe that there are some good features in his course but that this is heavily overweighted by some other advice that is dangerous. He continually preaches that it is easy to make money and his method of setting stops can be totally out of line as far as risk management is concerned. You can read our complete review in our "Review of Ken Roberts" mini-issue. In addition, we have set up a special page about Ken Roberts on our website. This free page gives links to web sites about Mr. Roberts and has a free forum where people can discuss Mr. Roberts and his ideas.
Mr. Roberts has never published a newsletter so no one can track his results. As a result, we can never really say if he is any good or not as a trader.
Our final advice is to not buy his course. There are so many other great books on futures out there that are cheaper and better. Look at the Editor's Choice Awards books on our free website for examples.
I don't recommend that you trade futures, but if you must, then read a lot of books and really examine yourself psychologically before you commit real dollars.