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FX Trading: A Losers’ Game?

It’s a shark tank, and if you ain’t the shark…

Nicolas Rabener
10 min read
14 Feb 2022

SUMMARY

  • FX hedge funds on average have produced zero alpha since 2007
  • Popular risk premia strategies have also been unable to generate profits
  • Difficult to explain why factor investing has failed in FX

INTRODUCTION

Cryptocurrencies like Bitcoin or Ethereum have received a significant amount of attention from investors over the last couple of years given extraordinary returns. However, the combined market capitalization of cryptocurrencies is still only between $2 and $3 trillion, compared to more than $100 trillion for the global stock market and $120 trillion for the global bond market.

All of these numbers pale against the foreign exchange (FX) market, where the total value traded was estimated to be $2.5 quadrillion in 2021, or $6.5 trillion per day according to BIS. FX trading is dominated by the US dollar, which is involved in more than 80% of the trades.

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