ForexSpirit

Trading is hard. Anyone who has put some time and effort into it should realise this.

Currency trading seems to be especially hard if the results of some of the big boys trading this year to date is anything to go by.

Bloomberg has an article today entitled Currency Bets Cripple Commodity Trading Advisers. A choice quote from the article states:

“It’s been brutal,” said Jeremy O’Friel, principal at Appleton Capital Management in New York, whose $150 million currency fund is down 11.7 percent this year. “In the absence of volatility, it’s very difficult to make money.”

…

This year, currency funds have lost 4.9 percent, the most in 12 years and the worst performers in the CTA universe, according to Stark. The strongest area for CTAs is stock futures, which have produced a 9.6 percent return for the funds this year, Stark data show.

…

“If you’re a momentum-focused, trend investor, you will not do well in this market,” said Michael Huttman, who helps manage about $10.5 billion as chief investment officer at Millennium Global Investments Ltd. in London.

The November 2006 edition of Currency Trader magazine also contains a short article on currency fund manager performance this year. I guess it’s no coincidence then that the title of this article is ‘Currency managers take pounding’. The article states that the Barclay Group’s BTOP FX index, which tracks the 50 largest currency managers, was down -4.17 percent through October 30.

So if all these hedge funds and CTAs have lost money again this year, who has been making it? I would guess it would have to be the banks along with large commercial companies who hedge their currency exposure.

For the small guy, the retailer forex trader, it is important to know that if you’re not making any money then you are in good company with a lot of these big shots. If you are making money, and are up for the year so far, then congratulations! You’re doing better than a lot of very smart traders who have been at this game a long time. Give yourself a nice pat on the back.

A lot of these hedge funds and CTAs trade using mechanical systems that have been developed in currency markets that trend quite frequently. With currencies, especially the EUR-USD, having been so rangebound for at half of the year so far, their models fall apart and the systems fail to generate any profits. The markets will continually change their shape and dynamics and it takes a wily trader to be able to keep up with these transformations. This is one of the main reasons that I prefer to function as a discretionary trader.