Author Bio

The prospect of having an investment industry genius strategically (and often aggressively) managing your asset allocations in an attempt to kill risk and crank out returns can be alluring. Add to that the current upsets throughout the global economy, and despite their stigmatic volatility, hedge funds are looking pretty tempting.

Unfortunately for many retail investors, the restrictions that determine who can access a hedge fund don’t leave much in terms of acceptance. In order to invest in these managed funds, one must either be an accredited investor with $1 million plus in liquid assets and a $200,000+/year paycheck, or a qualified purchaser, who owns at least $5 million in investments already. This clearly narrows the investor diversity scope down a bit.

But, the shell of the hedge fund industry looks like it’s finally starting to crack. Recent findings of financial research firm Cerfulli Associates published in an InvestmentNews article last week demonstrated that money managers expect their allocations into alternative investments to increase by at least 50% over the next three years. Investors and financial advisors also have a growing desire to increase alternative investments to negate market downturns and create a divergence from the stock and bond market.

But what does this have to do with making the elusive world of hedge funds more mainstream? It seems the ripples caused by an overall increase in demand for alternative investments have reached the mutual fund industry in the form of something known as ‘alternative mutual funds’.

Funds of this sort fall into alternative sectors such as long-short equity (one of the more popular), currencies, precious metals, and commodities. Taking it to the next level, alternative mutual funds twisted and evolved a bit further into something very similar, known as hedge-like mutual funds (the two names are often even interchanged.) These funds have the potential to hedge risk and generate stronger returns using some of the same strategies and tools that hedge fund managers use.

The most attractive characteristic of investing in a hedge-like mutual fund is that now, average-income investors can access the advantages of hedge fund investing previously available only to those qualified to invest in a hedge fund. Because the SEC regulates them, hedge-like mutual funds preserve some amount of the conservatism and transparency that is demonstrated within traditional mutual funds. Unfortunately, this can also impact these funds negatively in that it restricts their flexibility and requires a greater level of liquidity.

Though these crossbreed mutual funds aren’t anything new and earth shattering, Cerulli predicts that within the next five years, their presence will increase to the point of comprising 10 percent of mutual fund assets – a 245+ percent surge. The fueling of their growth really comes down to one thing: education. Money managers who strive to educate financial advisers on their investment products are the ones seeing positive results. This is due simply to the fact that many advisers are not yet familiar with all of their options in alternatives available to them. And we all know how easy it is to fear the unknown.

The theme of taking an investment that was once unavailable to traditional investors and making it available to them is common across the alternative investing landscape. Hedge-like mutual funds have successfully done what Currensee is striving to accomplish by carrying out this theme. Just the way hedge fund management, tools, and strategies were only available to high net-worth investors at one time, not long ago the world currency market experienced the same inaccessibility. However, with the emergence of various types of trade replication software and autotrading, even those with no prior knowledge of currency trading can allocate a portion of their investments to this type of alternative.

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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.

Author Bio

In the webinar a couple weeks ago a question came up from one of the attendees as to when the best time of day is to trade. This is a question that comes up a lot among forex day traders, though obviously most folks who seek to operate in that arena are constrained by the time zone in which they live. I’m going to present two distinctly different answers to the question – ones that contradict each other.

First, conventional wisdom
When the question of best time of day comes up the answer often put forward is the London/New York overlap period. The reason here is a combination of volume and volatility. London is the center with the highest average forex market trading volume, and New York comes in second (see The Most Traded Currency Pairs for specifics on which pairs are the most active globally and across regions). As such, there is maximum liquidity during this time of day for the major traded currency pairs.

On the volatility side of things the London/NY overlap is also the period when many of the most significant data releases and news items are released. Obviously, the NY morning is when most US data headlines post. Most UK and European data hits before NY gets going, but central bank statements and press conferences do happen in the NY morning. Also, key speakers often have their comments crossing the wires during the overlap period. In other words, there is a lot of news and data to move the markets and create volatility.

Thus, the London/NY overlap period offers volatility and liquidity, which many folk see as keys for worthwhile day trading. But wait!

Performance reality
The folks at DailyFX did a study a few months back looking at the performance of FXCM clients based on the time of day they traded. The results they came up with were entirely contradictory to the conventional wisdom noted above. They argue that it’s the lower volume NY afternoon, Asian, and early-European sessions which see the best trader performance.

Why so?

The author’s argument is that most individual traders tend toward a range-trading approach. This style of trading is ill-suited to volatile markets. As such, the news and data induced volatility we see in the London/NY overlap period is actually a negative for trading in the major pairs. They include a graph which shows a clear trough in the success rates of trades in the NY morning and another that shows the relative volatility peaks at that time of day.

Now, as I wrote in Optimize trading performance by time of day selection, there are some issues with the DailyFX article in its focus on win % as its main metric. The authors did include some system performance figures which provide some more results to back up the overall premise, though. As a result, I think it’s worth at least taking a very hard look at how your trading would do in different time frames during the day.

Makes you have to start wondering about conventional wisdom, doesn’t it? It should also have you thinking about opportunities to diversify your trading time of day. This may not be something you can do yourself because of your available time and locale, but using an autotrading system might offer you an opportunity to do so.

Editor’s Note: Originally derived from the webinar, the question examining what time of day is best to trade Forex had been answered by Trade Leader Taylor Growth during the Q&A session. Since he is a range trader himself, his response was congruent with the second part of the above answer, which leans towards the lower volume NY afternoon, Asian, and early-European sessions as yielding the highest trading success rates.

Taylor Growth explained that the best time of day to trade really depends on the strategy the trader is using. Since his conservative strategy is very technical, he believes it fares better in Asian sessions when trading European pairs. Since it is nighttime in Europe while the Asian markets are most active, no European news releases are making their way out and influencing trades.

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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.