Archive for the “Forex” Category
A reader of my trading education blog recently left a comment questioning the concept of so-called “off-exchange” forex trading. The reader in question had some concerns about the way the regulators in the U.S. have defined retail forex trading in this fashion. Those concerns, however, are unwarranted.
The term “off-exchange” is merely an indication that a market (or subset of one – in this case retail forex) does not function through an exchange like the New York Stock Exchange (NYSE) or Chicago Mercantile Exchange (CME). Exchange-traded markets, most notably the global stock markets, get considerable space in the press. They do not, however, represent the bulk of world financial market volume (though regulators have certainly been moving toward getting more trading done on-exchange for the sake of improved transparency).
Two very notable and very significant markets operate primarily off-exchange in the over-the-counter (OTC) market. One is the market for debt – long and short maturity paper issued by governments, municipalities, and companies. While there are significant exchange-traded markets for these money market and fixed income securities (Eurodollar and T-Bond futures are notable examples), the bulk of the volume is in the inter-bank/dealer OTC market.
The other major OTC market is, of course, foreign exchange. There is some on-exchange forex trading in the futures market, but that is just a sliver of the overall global volume transacted each day. The vast majority occurs between inter-bank dealers and their customers (or each other) without passing through any exchange. Retail forex trading is simply an extension of the inter-bank OTC market. As such, one need not get caught up in the “off-exchange” legal designation used by the regulators. It is simply clarifying language.
Would retail forex be better served to become exchange-traded? Perhaps. It would certainly make it easier for those who research it (like yours truly) to get useful information.
My suspicion, though, is that the nature of retail forex makes it hard to adapt to an exchange-based model. The whole daily rollover mechanism in particular is problematic. This is not something which can be done in the futures market with the fixed contract maturity dates. Otherwise, though, retail forex functions a lot like the futures market, at least the ones with cash settlement rather than delivery. This is no doubt why it is overseen by the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) in the U.S., rather than the likes of the Securities Exchange Commission (SEC).
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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A while back, motivated by persistent misinformation being presented in the media, I did a quick study of volatility in various markets. It was something I repeated here last year using weekly rather than daily data. Markets have had lots of different things happening recently, so I decided to re-run the daily data study, this time using 5 years of data rather than just the 1 year I went with the first time around. Also, rather than showing the figures in tabular format, I’ve decided to make things more visual and put the results in a pair of charts.
Here is the first one which compares four exchange rates, four major US stock indices, eight big cap common stocks, four major commodities, and four key US interest rate instruments (using futures for the latter two groups). It looks at volatility from the perspective of the standard deviation of daily % returns. This basically gives us an idea of how much of a change we see in each market on a given day.
The results are consistent which my prior analysis. The interest rate and exchange rate markets are noticeably lower in volatility than commodities, stocks, and stock indices. The major forex pairs move roughly about the same amount as longer maturity fixed income instruments like T-Bonds (using a price basis rather than an interest rate basis).
The second chart uses average daily ranges as the comparison point. The ranges are calculated as (High – Low)/Prior Day’s Close. This allows us to look at percentages for all markets so we’re comparing apples to apples.
There’s a bit of shuffling around in the order in which the markets rank when looking at ranges rather than returns, but generally the pattern is the same. Interest rate and exchange rate markets fall on the low end of the scale while individual stocks and commodities are on the high end.
The first reason for showing these images to you is so the next time someone tells you how risky the forex market is you can show them the comparison and ask them if they want to reconsider.
The other reason I bring this subject up is to provide a better understanding of volatility across markets , which factors into things like bid/ask spreads, margin requirements, and the like. This should help in your investment asset allocation process – or at least to have some insight into how different markets move if you’re just focusing on only one or two. Of course once you start applying leverage you can create a situation where any market can result in a very volatile account equity line.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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Toward the end of 2012 I authored a post that discussed a phenomenon academics in the area of behavioral finance term the Disposition Effect. This is a bias theorized and observed in which traders are prone to hold on to losers too long and close out winners too quickly. Anyone who has been involved in the markets for a decent amount of time while have likely heard the equivalent of cut your losses short and let your winners run, which is advice essentially meant to counter the psychological impact of the Disposition Effect without actually naming it.
In that prior post I talked about how this bias can be just as problematic for those taking part in social trading as trading on their own. The inclination to take sure profits can be very strong.
Of course there are ways one can work to overcome the desire to cut winners short and let losers run. Some traders opt for totally automated trading to take emotion completely out of the picture. Those who don’t go that route face significant challenges.
A recent paper looks at the impact on the inclination toward Disposition Effect influences on trading from the perspective of experience and sophistication. The authors find that higher levels of either measure can reduce the impact considerably, but neither can eliminate it on its own. Even when combined, high experience and sophistication will only eliminate the “hold the losers” side of the equation. It does not completely rid one of the inclination to close winning trades.
To restate the above, you can largely overcome the impact of the Disposition Effect on your trading through education and practice. That will make taking losses tolerable, but there will likely still be some compulsion to want to close out winning trades early. Knowing this, though, should help you overcome that bias.
Following on this subject, there’s another paper which looks at the Disposition Effect somewhat differently than most have to date. It firstly supports the case of the paper I just talked about in that it indicates the larger accounts (suggestive of more sophisticated and/or experienced traders) tend to show less inclination toward exiting winners and holding losers. This, however, is only the case when looking at individual trades. When looking at things from a portfolio perspective (they use forex accounts, so think multiple trades being on at once) the Disposition Effect influences continue.
Basically, the second paper says more experienced and sophisticated traders may be able to overcome the Disposition Effect on any given trade, but they still fall victim to it when managing a group of active positions. This is another thing for you to keep in mind, whether you’re doing your own trading or engaging in social trading. The easy solution is to have a specific plan to stick to it.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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Last week all the talk was about the volatility in Bitcoin. This week gold has jumped to the top of the list thanks to a sharp decline in the precious metal. Some folks are even drawing a link between the two markets. The Big Picture has a good collection of reactions, explanations, and expectations in a recent article. The OANDA blog blames the drop of the last two days to a massive sell order from an investment bank which hit the market on Friday. Not overly surprisingly, the surge in volatility has motivated a hike in gold (and silver) margins.
The big action in gold is not surprising, as it wasn’t all that long ago I wrote suggesting we look for something interesting to develop. We should, though, not look just at gold in dollar terms, but also in terms of other major currencies. The chart below does that.
A few things are noteworthy when we observe a gold cross-section like this. The first is that we can see how in terms of all but euros the price of the metal created a kind of double top between the latter part of 2011 and the second half of 2012. Only in euro terms was there a higher peak last year than in the prior, reflecting the problems underpinning the single currency.
The other thing to observe is the relatively weaker situation in the so-called commodity currencies. In both AUD and CAD terms we have seen gold prices fall down into the area of the lows from Q1 of 2011. That hasn’t been the case thus far in terms of EUR and GBP. This is suggestive of some extra weakness in the Aussie and Loonie, which should not come as a surprise.
The charts below show AUD/USD and USD/CAD respectively in comparison to gold in a weekly time frame, with a subplot showing the 20-period correlation reading. In the case of the Aussie, the sharp drop in gold has corresponded with a sharp drop in the exchange rate, pulling it back down from the highs of the long-running range. The correlation between the markets had turned back up after having dropped of late, likely indicating a move back toward the commonly seen strong positive relationship between the two markets. If gold remains weak we can thus expect AUD/USD to test the lower end of the consolidation before too long.
In the case of USD/CAD we already have an uptrend at work. Recently the market tested a prior rally peak and found support. The gold sell-off has seen the market push up from there. As yet we haven’t seen a test of the most recent trend highs, but further gold selling could see that happen relatively soon.
Regardless of directional considerations, though, the implication of high volatility in gold is for high volatility in the commodity currencies as they see their exchange rates impacted by the metal’s move. The AUD in particular is at risk of substantial influence because of the addition of its use in carry trade strategies. Because of the risk inherent in a fall in Aussie exchange rates against lower interest currencies, carry trade investors are likely to be quick to exit in a similar way they have been seen to do during the risk-on/risk-off periods of the last few years. As a result, a bit of extra caution is warranted.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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There’s been a lot of chatter about Bitcoin of late. This is thanks in large part to its significant upward run, but also because of its high volatility.
For those unfamiliar with it, Bitcoin is a decentralized, completely digital currency. It has no central bank and requires no financial institution to create or transfer. In these days where the likes of the Federal Reserve, Bank of Japan, and others are printing money in massive quantities, Bitcoin has garnered considerable attention as a currency that could represent a safe haven against inflation created by in incessant money supply expansion of the central banks, and also a place where people at risk of wealth appropriation (read Cyprus bank customers) could move their money.
There are two issues with that, however.
One is that the Bitcoin supply is actually growing much more rapidly than is the case for any of the major global economies. There is an algorithmically proscribed rate of growth for Bitcoin supply, which is described by the chart below. Eventually that growth rate will slow (with the plan to go flat at 21 million Bitcoins in to 2140), but one need only look at the slope of the left half of the chart to see that the near-term growth rate is quite high.
Source: https://en.bitcoin.it/wiki/File:Total_bitcoins_over_time_graph.png
The other issue is that the small supply (relatively) of Bitcoins means the virtual currency is very subject to volatility. Think of it like a micro-cap stock or a very thinly traded commodity (as observed by Felix Solomon). The founder of Bitcoin acknowledges this, viewing it as early-stage growing pains, but seems to be a bit uninformed when suggesting a $10 billion valuation would reduce choppiness. There is a lot of sovereign currency floating around the world and just the retail portion of global forex trade is a couple hundred billion dollars per day. It wouldn’t take much of that trying to move into Bitcoins to cause a sharp appreciation (which may not be too far away from being possible). That can be readily seen in how much of a rise there has been in the Bitcoin value of late. The currency was below $60 in mid-March.
Joe Weisentahl makes the argument (and was discussed on Bloomberg TV today) that what we’re seeing is a bubble like those seen in other fad markets over the years. There is no fundamental basis for Bitcoin, so nothing to use as a point of reference for its value. That means it is free to float around at whatever price people are willing to pay, which can be great when demand is positive, but it means things can turn quickly, especially given how thin the market is at this point.
We can see just such an example of this looking at the dip in the middle part of the chart where the market when from near $150 to down around $110 in short order, and there was an even bigger dip this week. Ironically, the very interest that has driven Bitcoin higher has also brought structural weakness and other issues to the fore, which is creating some of that volatility, as Business Insider discussed here and here last week.
While in theory something like Bitcoin has the potential to represent a store of value for folks looking to avoid the slow bleed in purchasing power from institutionalized inflation driven by the major central banks, it’s a long way from being ready to operate in that way. Because of its small size and still-developing digital infrastructure, there is considerable risk both in terms of volatility and inability to access/exchange your Bitcoin holdings. That makes it a place more for those speculatively minded who willing to take the risk, and not so much for those looking for a safe place to put their money. It’s just not a big enough market (yet) to consider a realistic alternative investment vehicle.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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Just about two months ago I wrote about my expectations for an expansion in volatility in the dollar. That was based on looking at the weekly USD Index chart and observing very narrow Bollinger Bands, which is often a precursor to the start of a new trend in the markets. As we can see, the greenback has indeed broken clear of the range it started the year in, and of late has reached within striking distance of the 2012 peak.
We can see from the Band Width Indicator in the sub-plot above that the Bands are now in about the middle range of how wide they have been over the last couple of years. That means there is yet some room for further extension to the trend (thought it should be noted that sustained trends often seen the Bands start to narrow).
The daily chart gives us an indication that we just might see that fairly soon. Notice how in that time frame the Bands have reached their lowest levels in the last 12 months. That, in and of itself, is not a directional indication, however. It merely tells us that we probably don’t have long before the recent consolidation in the USD gives way.
So what can we glean about potential direction from the dollar pairs?
If we look at EUR/USD we can see the market has already extended its trend lower and turned a low Bollinger Band situation up.
The USD/JPY situation is quite different. Here we have a market which has already retraced quite a bit from its highs and has been developing a topping type of pattern overall of late.
Similarly, GBP/USD has also been working back higher, showing indications of a trend change.
AUD/USD has been moving higher for some time now. It does face important overhead resistance from the highs near the start of the year, however.
Meanwhile, USD/CAD shows a pattern not dissimilar to that of USD/JPY and GBP/USD in that the greenback has been weakening noticeably of late.
Taken together, we have a picture telling us that the only reason the USD Index is holding near its higher levels is the weakness in the euro. As a result, if the single currency develops some strength – even if it just takes a pause to consolidate the recent downtrend – we could see the index drop. That is not at all contrary to what we see on the USD daily and weekly charts. It would be quite easy for the greenback to retrace back toward the Q4 highs broken earlier this year. That would be important support now.
You may recall my post from a few weeks ago talking about how the strong stock markets may be signalling a turn in the dollar. In a way, we’ve already seen it happen as equity indices have continued to move higher. Now it’s just a question of whether the euro can stabilize and put the USD Index under pressure as a result.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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A recent article in the Atlantic has once again brought up the question as to whether the euro can survive (and generated a fair bit of discussion in the comment section). This is a debate that is on-going, of course. In fact, I was in the markets back when the single currency was launched and can say that even then there were a lot of people who didn’t expect it to last for any length of time (certainly not as long as it has done so far). That pessimism was part of what saw EUR/USD dive to near 0.8200 in the year 2000.
The Atlantic article brings up a common refrain in the arguments why the euro must eventually go away – namely the lack of an exchange rate adjustment mechanism to allow struggling economies like Greece to become more competitive through currency devaluation. Now in part that can come from a weaker euro. That hasn’t come against the USD to be sure.
The euro started life with an exchange rate to the dollar near 1.17, but since the market recovered from the initial decline it has only once dipped back below, and even then just fractionally and briefly. Despite all of the problems that have been well documented in the Eurozone since the Financial Crisis, the euro has remained quite strong against the greenback, albeit in a volatile fashion. Likewise for the pound.
There has been considerable euro devaluation against some currencies, however. The euro has really been beaten up against the commodity currencies such as the AUD and CAD. Given the strength in commodities in recent years, and the EZ issues, this is to be expected. The weakness of EUR/JPY is tied in to what many folks see as the inexplicable strength of the yen despite serious problems in the Japanese economy as well. And of course EUR/CHF got so weak because of flight to quality flows that the Swiss National Bank had to support the euro and put a floor under the cross. We have also seen declines in the likes of EUR/NOK and EUR/SEK, which are probably better reflective of exchange rates among real trading partners.
Unfortunately for those countries in the Euro Zone struggling, the weaker euro is only partially helpful. The Atlantic article observes that when excluding Germany a bit over half of all EZ trade is done within the zone. The weak euro has little impact on that fraction of trade, though it definitely helps the more externally export oriented countries (like Germany). Cyprus cannot become more price competitive to potential tourists from Europe because they do not have their own currency to depreciate.
Of course, as we have witnessed in the case of Japan, having your own currency doesn’t automatically mean you get the kind of devaluation you’d like to get to make your export goods more price competitive. The UK also struggled with a persistently strong(ish) pound when the Bank of England really wanted it to fall (though without actually saying so explicitly).
And not that currency devaluations are the quick fix some folks seem to think they are. It’s would be a very messy process in the case of a country exiting the euro – one that could actually make matters worse in the short-term. Just think about what would have to happen to all of the debts and obligations currently contracted in euro terms if a country like Greece exited the single currency. If a Greek company had a euro-denominated obligation and a new drachma devalued by 50% from where it came into the euro, it would be like that company’s obligation doubling!
But politics are very likely to be the major factor here.
There are considerable cost savings to being part of the EZ, not to mention a growing support infrastructure now. Plus, for countries like Germany who do considerable external export business, there is a major benefit to having a currency which is relatively weak. For these reasons and many others, there is going be a strong reluctance among the politicians to break up the euro. As a result, don’t look for it to happen any time soon. Even the expulsion of a single country presents problems as the ECB has repeatedly said there is no mechanism for doing so. Just imagine how long it would take to create that mechanism. Do you want to place bets on politicians moving with haste and expediency when all they have shown thus far is a proclivity for drawing things out?
This doesn’t mean one can’t bet against the euro from an exchange rate perspective. I just wouldn’t hold my breath waiting for the thing to come apart.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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It is only a matter of weeks since European officials openly congratulated themselves on their seemingly successful efforts to bring the prolonged eurozone crisis to an end. The backslapping subsequently proved premature, as the botched rescue package – designed to help an ailing Cyprus raise part of its emergency funding needs internally and ultimately secure external support of some €10 billion – put policymakers’ incompetence on show for the entire world to see.
The initial proposals are difficult to fathom, given that policymakers’ had months – and not days – to devise a credible plan. The lack of time pressure should have allowed decision-makers to get ahead of the crisis, but this advantage counted for nothing, as the proposed plan to recapitalise the banking system was virtually certain to prove ‘dead-on-arrival,’ given that it violated the hierarchy of claims in the capital structure.
The original plan envisaged that senior bonds would be made whole, while uninsured deposits would participate in losses, even though these depositors should rank at least pari passu with senior bondholders. Further, Cyprus’s leadership – in a desperate attempt to minimise the losses imposed on uninsured foreign deposits, and thus preserve the country’s status as an offshore banking centre – decided to bail-in insured depositors, even though such liabilities should be considered sacrosanct, so as to avoid devastating bank runs.
It came as little surprise that the deeply-flawed plan, which was intended to raise €5.8 billion and fill the hole in bank balance sheets left by bad debts and losses on Greek sovereign debt, was rejected decisively by Cyprus’s parliament, with not one single Member of Parliament voting in favour of the proposals. Sent back to the drawing board, sanity ultimately prevailed among policymakers, as the revised plan unveiled eight days ago, resembled what one would hope to see in an orderly bank resolution.
The revamped plan scrapped the ill-advised idea to impose a ‘stability levy’ on all depositors, and will “safeguard all deposits below €100,000.” Instead, the banking system will be restructured – the Laiki or Cyprus Popular Bank, the second largest lender, is to be split into a ‘good’ and ‘bad’ bank, with the former to be backed into the country’s largest lender, the Bank of Cyprus, and the latter to be wound down over time.
Both Laiki’s shareholders and bondholders – junior and senior – will be wiped out under the revised plan, while insured deposits, alongside the €9 billion in liabilities that stems from liquidity support provided by both the European Central Bank (ECB) and the national central bank, will be transferred to the Bank of Cyprus.
Meanwhile, Laiki’s uninsured deposits amounting to €4.2 billion will be placed in the ‘bad’ bank. These depositors can reasonably expect to recoup very little – if anything – as they will eventually receive a sum that amounts to no more than the distressed value of the ‘bad’ bank’s impaired assets.
The enlarged Bank of Cyprus will face a large restructuring effort to raise its capital ratio to EU-mandated levels of nine per cent by the end of the programme. Since no bail-out funds are to be used to recapitalise the troubled bank, both shareholders and bondholders are likely to lose all of their investments, while the hit to uninsured depositors – via a deposit-to-equity conversion – could amount to as much as fifty per cent.
The revised plan is a vast improvement on the initial policy blunder, since it respects established credit hierarchy. However, there are still reasons to believe that the Cypriot banking crisis is far from resolved, while the new blueprint could well have far-reaching consequences across the monetary union that are decidedly negative.
The banks may well have reopened last Thursday – with no sign of a disorderly run on bank deposits – but this was purely a function of the €300 daily limit on withdrawals and curbs on cashing cheques. These measures – alongside capital controls that prevent virtually any cash from leaving the island – are supposed to be temporary and last just seven days. However, once lifted, panic is sure to ensue, as depositors scramble to protect their savings.
Cyprus’s banking system has already lost access to normal ECB operations, and is dependent upon emergency liquidity assistance (ELA) from its national central bank. However, a shortage of unencumbered collateral – alongside the haircuts the national central bank applies – limits the availability of ELA, which may prove insufficient to fill the gap left by deposit flight. As a result, further losses could well be imposed on uninsured depositors.
This means that measures are likely to prove anything but temporary, and remain in place far longer than currently envisaged. This should serve as a warning to bank creditors in other eurozone states with ailing and oversized banking systems. Depositors – both insured and uninsured – are sure to be increasingly nervous, and willing to withdraw their cash at the first hint of trouble, which means that banking crises are likely to develop far more quickly than previously.
Further, bank funding costs are likely to increase permanently for troubled banks. The decline in margins and the resulting downward pressure on already-beleaguered profitability could well prove to be a key factor behind accelerated deposit flight.
It may be a small island, but the precedent set in Cyprus could have big consequences for many years to come. Cypriot banking woes are a game-changer.
www.charliefell.com
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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Broadly speaking, the more someone trades, the worse they do. Did you know that?
A pair of academics named Barber and Odean published a paper in the Journal of Finance back in 2000 with the blunt title Trading is Hazardous to your Wealth. The focus was on individual stock traders. The authors concluded that the most active traders demonstrated the worst performance on a relative basis. Basically, these stock trades couldn’t overcome their transaction costs.
As part of my on-going PhD research I replicated the Barber & Odean study looking at retail forex traders. I’ve written previously about how retail forex is a negative sum game. As a result, one must anticipate mathematically that higher levels of trading will result in lower returns, on average. Still, it’s interesting to look at what the data has to say.
The study I’ve done breaks the traders each month into quintiles based on their trading activity. I used number of trades, total dollar volume, and turnover (total dollar volume divided by account size) as the metrics of trading activity. In the chart below you will see how each metric relates to performance in each quintile.
The performance shown above (left scale %) is return relative to the monthly average. So when you see positive readings that means for that quintile of traders the monthly return for those in that 20% of the population is greater than the monthly return of all traders (though it’s still negative overall, as the negative sum game expectations dictate). Likewise, a negative reading means returns worse than average.
The pattern is pretty clear. No matter how you look at it, returns are worse the higher one’s relative trading activity. The one little wrinkle is Quintile 5 for volume, which shows an uptick. My suspicion is that relates to the size of trades being done by more professional traders (presumably with larger accounts), but I need to dig into that further to be sure.
As I noted, however, these are aggregate numbers and not specific to any one trader or common group of traders. Thus, they cannot speak to the trading of any one individual. It does, however, demonstrate how destructive it can be to trade very actively (either in terms of frequency of trading or in the amount of leverage applied, which the turnover figures capture) when one does not have a clearly defined statistical edge. This is something you need to think about not only for your own trading, but also when analysing the performance of prospective social trading providers/platforms and other type of alternative investment vehicles.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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I’m a sucker for a good venn diagram, so when I saw one on the New York Times Bucks blog featuring the intersection of “Rich Smart People” “Super Secret Formulas” and “Costs You a Lot of Money” I had to learn more. What’s in the intersection of Carl Richards diagram? Hedge Funds, that’s what. The post’s title? “The Appeal of Investments That Cost More and Return Less”
I’m not here to dump on hedge funds – I’m sure there are plenty of folks out there who can do that – but what is this weird attraction to opacity? Why do some people like alternative investments with mystery ingredients? Do these people also buy food without reading the ingredients? Nobody likes mystery ingredients in food, right?
Richards thinks it’s a persistent bit of “(bogus) investing folklore” that “the more complicated and secretive and exclusive it is, the better.” Sure, if the secret to great returns at low risk wasn’t a secret, everybody could enjoy them, and that’s clearly not the case. The folklore persists, but just because you can’t do it – maybe you don’t have the time to run models and keep up with markets and manage trades – that doesn’t mean you don’t have a right to know about how it works and what’s in it.
You know Currensee is all about transparency, so here’s our advice to smart rich people, and it also goes for anybody with money to invest: ask to see what’s inside and how it works; if they won’t tell you, be very very careful. Investors in stocks hold the boards and executives accountable and demand annual reports and audited financials, so should people who hold alternative investments and managed funds.
------- Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.
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