How Does a Forex Portfolio Look Like?

A managed account portfolio for a traditional investor might look like a combination of stocks and bonds of companies from a particular sector or a group of industries.

When traditional investors venture into the world of managed FX, they might naturally wonder how a "Forex Portfolio" should look like relative to their traditional counterparts.

The thing is that currencies are different animals than equities and they are normally traded much more actively by portfolio managers than traditional managers do with stocks and bonds.

First of all, currencies trade in pairs (for example, the Euro versus the US Dollar or EURUSD, etc.), so that is completely different than shares of General Electric or Coca Cola that trade by themselves (if this sounds like Chinese to you, please review our education section). A manager might sometimes be holding stock of a company like Coke in a managed portfolio for years, waiting for the stock to appreciate. On the other hand, a forex money manager who feels the Euro might appreciate versus the US dollar, is going to make a leveraged bet bet using the EURUSD pair. The manager is seldom going to hoard up on a large EURUSD position for a very long time hoping for Europe to strengthen. Most of the times, he will have an exit price or stop to limit his loss on the position based on his risk management guidelines.

Even thought it is theoretically possible for an investment manager in FX to take a very long term approach and hold on to positions for years, this is seldom the case. Consequently, the holdings in a managed portfolio will more than likely be in constant flux with the account switching over to cash (or uninvested) on a frequent basis (since sometimes positions will be closed, as the manager waits for new trades or opportunities to develop).

We believe that the short term approach is the best approach to take for the long term; and that's why the managed accounts we offer will not structure long-term or fundamental portfolios like traditional investment programs do. We don't have the stomach for that and would need to much Pepto-Bismol if we did things differently!