EES: Warning to investors - Do Not Invest In Currencies
We see from time to time articles from investment groups talking about how they believe that the US Dollar will be strong for the next 18 months blah blah blah. It's always positive to hear investment managers learning about FX. Unfortunately, as we explain in Splitting Pennies - FX isn't like other markets. Investing in Currencies is an outright gamble. Let's elaborate on this point, the difference between TRADING and INVESTING.
When someone says that the US Dollar will be 'up' in the next 6 months - how do they know there won't be a black swan event, such as an act of terror, a surprise interest rate increase, a coup, or any number of other events that can shake markets?
Goldman's Robin Brooks has to be a sadist: that is the only way we can explain his ability to crush the greatest number of Goldman clients at every possible opportunity.
Well, if Goldman can't do it - you really think you are smarter than Goldman Sachs? And remember that Forex is a Monopoly, in which Goldman Sachs is a controller. They lose money in a market they 'control.'
Why would an FX outfit warn investors not to invest in Currencies? Because we believe based on statistical evidence that the markets are random. Or to be more static - even if they aren't random, if a strategy can work on random numbers, it can work on any market.
And the benefit to investing in Forex strategies, it is an asset class per se. In fact, investing in a strategy isn't an investment in currencies. Although, most FX strategies will not work on stocks, bonds, commodities, and other instruments. That doesn't mean the strategies are correlated to FX price activity - they're not. Simply, it's possible to create mathematically sound strategies in FX that's not possible in other markets. This is due to a number of reasons but most notably, FX has superior size and liquidity, relatively low volatility, higher activity (tick movement), and a plethora of development tools for strategists.
Unless you're George Soros, trading and investing in FX without the aid of computer models is highly risky! For this reason, hundreds of FX managers across the globe have invested their own funds in the research and development of strategies, mostly algorithmic but almost all quantitative. Here's one just as an example, that didn't have a losing month in 3.5 years. But it is expensive to have such results, it requires massive computing power, and constant optimization.