To the private investor, cash or currency holdings
traditionally imply interest-based growth within term deposits and
money-market funds. But with global interest rates as low as they are, and
exchange rates forever on the move, small gains may in fact be larger real
losses. The US Dollar Index has declined about 23% since Independence Day
2001.
A growth area in alternative investments is Managed
Currency Accounts, whereby an investor opens their own foreign exchange
account with a licensed, regulated US brokerage, and grants limited
authority to a professional Adviser to trade that account against the
interbank global forex market.
Commodity Trading Advisers as they are known in the USA,
have master agreements with a brokerage, that in turn administrates the
account and makes a secondary market under the watchful eyes of the National
Futures Association and Commodities Futures Trading Commission. Nowadays,
spot (cash market) trading is electronic and "straight through" to
the underlying interbank market, so there is a level playing field for all.
A successful adviser will deliver about 5% a month, which
is 60% a year if you take the gains as monthly income, or 264% if
compounded. Needless to say, professionals keep to a very low leverage of
4:1 or 5:1 in this market to manage the intraday volatility. They should
also hedge a spot market position with over-the-counter option contracts, or
vice versa.
For the private investor, using a small percentage of
your portfolio in this way can boost overall performance and protect its
real value in other currencies to which you will be exposed. What’s more,
your Managed Currency Account has better regulation, more transparency,
fewer charges, and offers much faster access to your capital than does an
offshore hedge fund.
