Of Capital

A couple of manual trades closed successfully shows me up a modest 4% this past month. Seems hard to justify the cash sitting in the bank with that kind of return.

At this point I suspect most readers are crunching the numbers and seeing a >50% annualized return as unobtainable, risky and foolish. However, I will kindly remind them (and myself!) of a few insights they may not realize.

In this case, it may very well be said investing such capital into any market, let alone forex is a huge risk, and is only attempted to the investors own peril. One does well to listen and think for themselves after receiving such a warning. The concept that money (in this case US dollars) sitting in a bank is safer than vested in the forex market. After all, banks have guarantees, known returns, etc. This is all well and good. Indeed, those telling me such things would never dream of investing in anything, barring perhaps the stock market ₁. To anyone in this position, I would challenge that they are invested, and in my opinion, invested poorly in the forex market! They are (and presumably have been for some time) sitting on a giant dollar long position. To anyone holding this position (myself included) the long term returns have been quite negative. Your getting poorer, even if the digits in the account are higher than 10 years ago. Trading in the forex market merely allows you to diversify and choose where to put your chips. Having such a huge (albeit unleveraged bet) is not a wise investment choice at all times.

Now to the original claim that a double digit return is risky, unobtainable and foolish. I am certainly not so foolish as to count on nor expect that kind of return. However, the market has given, and will likely continue to do so ₂, opportunities to achieve such returns. I can make informed investments, manage risk, and do everything "right" ₃ and still lose money. Oddly enough, the converse is also true. I can do everything "wrong" and still make money.


1. The stock market shall have to be dealt with in another post. For now, suffice to say there is reason why I call it the magical money tree. Not matter what the brochure the salesman shows you says, we're not all going to be millionaires in 30 years.

2. As long as humans are the source of the market, volatility will know no bounds.

3. The definitions of right and wrong here are dubious and relative. However, the arguments hold no matter the readers definition of proper investing.