MODELING THE INEVITABLE LOSS IN THE FX MARKET: AN APPLICATION OF PROBABILITY THEORY

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TAYEBI SEYED KOMAIL; MOEENI SHAHRAM; ZAMANI ZAHRA

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Paper Information

Journal: JOURNAL OF ECONOMIC MODELING RESEARCH Year:2013 | Volume:3 | Issue:11 Page(s): 99-121

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Title

MODELING THE INEVITABLE LOSS IN THE FX MARKET: AN APPLICATION OF PROBABILITY THEORY

Author(s)

TAYEBI SEYED KOMAIL | MOEENI SHAHRAM | ZAMANI ZAHRA | Issue Writer Certificate

Keywords

FX MARKETQ2

ZERO-SUM GAMEQ2

PROBABILITY THEORYQ2

CAPITAL LOSSQ2

LEVERAGEQ2

SPREADQ2

Abstract

Foreign exchange (FX) markets play a significant role in the global financial market, so that it comprises 40% of total global e-commerce values. However, reports show a 90% loss of entire investment of traders in this market usually after six to 12 months after entrance.This paper analyzes losing values of the majority of traders theoretically and empirically. Furthermore, by ignoring SPREAD of broker and existence of inflation, it is shown that the FX MARKET is a repeating ZERO-SUM GAME. So, by developing a theoretical model in a framework of the PROBABILITY THEORY, we have shown that probability of a loss in the FX MARKET is quite high. Results show that the loss of the majority of trade occurs undoubtedly. Using two major currency pair data: Euro-Yen (EURJPY) and Euro-Dollar (EURUSD) in a daily duration in 2009 and 2010, we show that probability of failure (loss) cannot be less than 90%. We also showed the fact that, the larger number of transactions, the higher percentage of traders' losses. The higher probability of loss also depends directly on the volatility of exchange rate and higher rates of SPREAD and LEVERAGE.

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APA: Copy

TAYEBI, SEYED KOMAIL, MOEENI, SHAHRAM, & ZAMANI, ZAHRA. (2013). MODELING THE INEVITABLE LOSS IN THE FX MARKET: AN APPLICATION OF PROBABILITY THEORY. JOURNAL OF ECONOMIC MODELING RESEARCH, 3(11), 99-121. SID. https://sid.ir/paper/208821/en

Vancouver: Copy

TAYEBI SEYED KOMAIL, MOEENI SHAHRAM, ZAMANI ZAHRA. MODELING THE INEVITABLE LOSS IN THE FX MARKET: AN APPLICATION OF PROBABILITY THEORY. JOURNAL OF ECONOMIC MODELING RESEARCH[Internet]. 2013;3(11):99-121. Available from: https://sid.ir/paper/208821/en

IEEE: Copy

SEYED KOMAIL TAYEBI, SHAHRAM MOEENI, and ZAHRA ZAMANI, “MODELING THE INEVITABLE LOSS IN THE FX MARKET: AN APPLICATION OF PROBABILITY THEORY,” JOURNAL OF ECONOMIC MODELING RESEARCH, vol. 3, no. 11, pp. 99–121, 2013, [Online]. Available: https://sid.ir/paper/208821/en

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