FX Concepts LLC was once the world’s largest Forex hedge fund that at its peak managed more than 14 billion in assets.
As of September 26, that number has declined to $661 million.
Founded in 1981, FX Concepts has suffered significant losses in the past few years and is now liquidating its fund programs and laying off most of its employees.
This has been mainly due to the weak performance of their flagship fund, Global Currency Program, that is down 13.9% for the year (as of August). At the same time, another fund, the Multi-Strategy Program has declined 10.96%.
Robert Savage, the chief strategist at FX Concepts wrote in an email to Bloomberg, “FX as an asset-class business has been difficult this year.”
And they aren’t the only ones who are suffering. Here’s a list of the top trend-following managed futures funds and their performance in August:
(source: Au Tra Sy)
As you can see, this is indeed a difficult time for institutional traders and hedge funds.
But if even the professionals are having trouble turning a profit, what about the retail traders?
Can You Out Swim A Shark?
What many people don’t realize is that professional traders are an altogether different animal compared to retail traders.
They have superior research teams, technological capabilities and industry contacts. They control hundreds of millions of dollars and have teams of analysts who monitor the markets at all times.
Retail traders like us don’t stand a hair of a chance if we’re trying to beat them at their game. It’s like trying to out-swim a shark.
So unless we choose to play a different game from the professionals, we’ll not just lose, but lose terribly.
If we tried to trade like they did during these times, we’d do a LOT worse.
The Retail Traders’ Edge
Thankfully, the retail trading industry is structured in a way that benefits relaxed trading.
Instead of competing with hedge funds at their own game, we can calmly step in and out of trades over a longer period of time, and not have to fuss about intraday price volatility.
Flexibility is another key advantage to retail traders. We can switch strategies in an instant and adapt almost immediately to major shifts in the market.
These are just some of the incredible advantages of being a retail trader, but few people seem to understand how to use them effectively.
Beginner Scalpers = Fish Food
This is why it’s so common to see people in forums talk about scalping the 1-minute and 5-minute charts – they’re trying to swim like a shark when it’s actually a huge disadvantage to do so.
I’ve just visited one popular Forex forum and came across the results of a scalper:
This is what typically happens – if you’re lucky, you can quickly grow your capital but all it takes is a couple of bad trades to wipe you out.
It’s a classic example of a retail trader who attacks the market without a proper plan.
Unless you understand your operating environment and trade according to it, the odds are stacked heavily against you.
But this is not what new traders want to hear. They like to be told that all it takes is a few technical indicators to make money scalping.
Alas… if it were only that easy.