Trading Forex - How Good are Professional Traders?

All of us who trade financial markets continue our education. We do it by reading books, periodicals, attending trading seminars and conferences. Just about all of us have a favorite trading book or author. Most of these people are, or have been, professional traders passing their experiences to others.

Professional traders come in few categories. Some are independent, trading mostly their own accounts or small pools of money. Others come with a pedigree of trading for money management companies. In this category we can find hedge fund traders, CTA's and other money managers for large, commercial pools. Last but not least are bank traders, who trade bank's money, not just market makers.

It is difficult to obtain any reliable information about independent traders results. Banks often do not disclose trading results, or they don't single out currency operations from other earnings. Only hedge funds and other money management institutions disclose results, as they should, since that is how they attract new clients. These are generally the only reliable figures for trading public to have access to and compare own achievements.

Currency traders don't have a performance measuring yardstick, like stocks, which can be viewed in relation to indexes, like DOW 30, S&P 500, NIKKEI and others. Some programs, which specialize in single currency, can possibly relate to an index of given currency, like Dollar Index, but by and large most trading takes place across broader spectrum of Forex. That's why comparison of results is done simply in percentages of total returns.

Barclay's of England compiles Barclay Currency Trading Index. Index comprises of results achieved by a wide range of professional, Forex only trading programs and is reported monthly. As of this writing, in early October 2008, there are 145 entities included in the index. These are both spot and futures trading currency funds. Index is equally weighted and is a good proxy of Forex trading pros.

The results are not what most of us would expect. In fact, they are less than inspiring.
Year to date in 2008 the returns are meager 1.02%. That's right, only one percent. This follows 2.59% in 2007. The years before were even worse, 2006 showing a loss 0.12% and 2005 also negative 1.21%. In fact, in last 10 years there was only one period when the index showed gains of more that 10%. This was in 2003 when the reported return stood at 11.08%. Pretty bleak picture.

We have all seen or heard all kinds of outrages claims made by promoters of Forex products. A lot of them promise easy money with minimum or no work. Reality is much harsher. Results reported by institutional professionals should be clear indication that trading is much more difficult than it appears or is presented.

That is not to say making money trading currencies is impossible for an individual. One can be successful even significantly better than Barclay Currency Trading Index. It takes patience and discipline, sound trading model and strong money management, but with time, there is no reason why a devoted trader shouldn't outperform this index on regular bases.