Make Money from FX Markets - dummies

By David Stevenson

In simple terms, FX markets offer the perfect environment for the active UK trader: liquid, deep markets that offer cost-effective trades, simple structures and lots of leverage — you simply have to supply the winning strategy!

Professional hedge-fund investors use these currency markets to take a macro decision (a big picture view) and then implement it quickly and efficiently. What’s even better, they can implement that macro investment decision using leverage to gear up their returns.

Hedge funds and specialist FX traders have emerged as a very popular alternative asset for many institutional investors, with impressive results. One research firm that tracks hedge funds has had a Currency Traders index in operation since 1987 which tracks all the main US-based players.

This index has logged only four down years, without a double-digit loss, whereas the S&P 500 has been down six times over the same period, with four of those years boasting losses exceeding 10 per cent.

Data from this index also suggests that those returns have been fairly consistent, if not exactly monumental in scale; in other words, don’t invest in a currency-based hedge fund if you expect returns of 30 per cent or more in a good year. Many of the leading funds successfully chisel out positive returns of 2‒9 per cent a year with a remarkable degree of stability.

Over the past decade, currencies have been half as volatile as stocks and have tended to move in a direction that’s largely distinct from the trading patterns of stocks and bonds. In other words, they can provide you with non-correlated returns.