During the last year, the foreign exchange market has been in a constant state of flux. First, the Euro currency gets pummeled due to the ongoing European sovereign debt crisis and potential Greek exit from the Euro Zone. Then EURUSD does an about face as worries of hyperinflation in the US due to the Fed's obsessive bouts of quantitative easing (QE) continue (see Bloomberg's, "Dollar Falls to 4-Month Low Versus Euro on Fed; Yen Lower," for more info on the Fed's September 13th QE3 announcement).
It seems as if the market moves drastically in one direction only to reverse and go the other way the next day.
Many portfolio managers, whose methodologies rely on holding on to open positions in an attempt to ride the dominant trend, have been getting slaughtered. Just when they think the trend will go comfortably their way, it does a 180-degree turn, taking out stops – sometimes multiple times in succession during a relatively short period of time.
Short Duration Strategies to Reduce Market Exposure
In traditional investment-speak, "short" duration usually refers to portfolios of debt or bond instruments with maturities of at least a few years. In the FX industry, it can refer to the holding of a position for only a few seconds or minutes. Sometimes referred to as "scalping strategies," these transient techniques (if implemented successfully) can effectively limit risk by maintaining positions open for the least amount of time possible, thus minimizing exposure to unpredictable market moves. Consequently, during chaotic times like these, the advantages of these types of strategies become even more highlighted.
Now, the problem why not every trader out there is using short duration strategies in this market environment is because they are not easy to implement. Not every hot shot fund manager from Harvard in their spiffed up Ermenegildo Zegna suits is able to successfully calibrate their trigger fingers for trading success, or to design algorithmic systems on the fly to do the same. Most investment managers are only trained in the use of very traditional forms of technical or fundamental methodologies.
Even though this rapid-fire approach to investing is not the norm, its advent into the world of mainstream investments is sorely needed. When financial bubbles seem to be made to order by overzealous central banks in wrestling matches against the natural supply and demand behavior of their own currencies, now is the time to bulletproof portfolios using untraditional means; that is, if you care at all about your money.
Available Solutions to Weather the Market Storm
One unorthodox solution that was implemented in late 2011 to minimize market exposure is the RazorFX managed account program, which uses a very advanced, systematic approach to trading temporary price movements known as "micro corrections." These micro corrections sometimes occur after irrationally exuberant moves in market prices. Through the use of sophisticated scalping algorithms that maintain positions open from a few seconds to a few minutes, this program aims to exploit these transient opportunities. Since the program feeds off market chaos, it can be a great way to add diversification or reduce the overall risk of the 21st Century portfolio.
If you're interested in requesting more information about the RazorFX program, please click here to complete our short form. Once you do, we will send you detailed information and the most recent performance numbers.