The Challenges of Investing in Emerging Forex Traders

Investing in emerging Forex traders (these traders are sometimes called managers) can be extremely rewarding, or it can be extremely disappointing.  Similar to athletics, catching a rising star before anybody else notices a person’s talents can be financially rewarding for both the discoverer and the discovered.  Generally, as assets under management grow, returns shrink. And here’s the paradox: the longer you wait for a manager’s track record to become statistically significant, the more likely it is that that manager is going to acquire more assets under management and the managers track record will suffer due to the law of diminishing returns.  We all know it is easier to manage a $100 thousand vs.  $50 million.

Investors who take that first chance on emerging trader can make a fortune.  The initial investors in Warren Buffet and Paul Tudor Jones funds are now multimillionaires, or possibly billionaires.  How an investor picks an emerging manager is as much of an art as it is the science.

The art and science of picking emerging managers will be a topic of Forex Funds blog post shortly.