Making Money With Foreign Exchange Futures?

Last Updated Dec 16, 2009 7:53 PM EST

I got a telephone call not too long ago from yet another stranger offering to make me rich. This time,the method de jour was Foreign exchange futures, commonly called the Forex market.

The pitch from Nobel Trading Group claimed they had a proprietary trading model that haddelivered at least a 200 percent annual return for the last three years. They boasted of success inthe Forex market, in which participants are able to buy, sell, exchange and speculate on currencies.Betting against the dollar, for example, has apparently been quite successful over the past couple ofyears.

So I bit on this one and requested that the caller send me more information. They emailed me somedocuments that I would categorize as DRIP (data rich information poor). The data showed pages andpages of trades that looked pretty impressive.

Noble Trading Group followed up with a call again claiming 200 percent returns. I thought I'd see ifthey would put it in writing. To my surprise, they sent me the following email:

My team of traders and their ability to identify trends in the Forex Market have posted profits over200% annually for the past three years. Their trading system is proven and gives us the ability topair currencies with a success rate that is just shy of 70%. We set very small profit targets and on adaily basis we are able to pick up 1/2 to 1%. The dollar will continue to lose value as our economyimproves because of inflation. It is http://www.trackntrade.com/forex/ much easier to pair aweakening currency with one that is more stable, so we expect our success rate with this trend tocontinue for at least the next 24 months. When the dollar does turn around, we have the ability tochange the oscillators within the system and we should be profitable in its up-trend as well.

That fishy smell

After receiving the email, I called and spoke to a Director at Noble Trading Group. I quicklydisclosed that it was unlikely that I was going to become a client of their $5,000 a year subscriptionof signals to play in the Forex market, but did think it would make a good column. He was more thanhappy to talk to me.

He confirmed, as implied by the email, that this was indeed a conservative strategy. I then asked himto reconcile his statement with his web site that stated:

FOREX TRADING INVOLVES SUBSTANTIAL RISK OF LOSS. THE HIGH DEGREE OF LEVERAGEINVOLVED IN FOREX TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU.

According to this Director, this statement was only to protect the firm and their strategy ea builderreally is conservative.

Another thing that didn't quite smell right was the fact that they were even soliciting. I pointed outto Noble that a 200 percent annual return for the three years they claimed, would translate to a2,700 percent return over three years. With such astronomically high returns, why wouldn't Noblehave people beating down their doors to get in? The Noble director claimed current clients didn't

want to tell others.

A zero sum game

Before ending the call, I asked if Noble Trading Group considered the Forex market a zero sumgame?. After all, if some money is on one side of the future's options, there must be an equal amounton the other side. Thus, in order to make money, one must outsmart others. Of course, the brokeralways wins, just like the Las Vegas Casino. And, of course, Noble did not agree.

Fishy smell turns rotten

Still, the pages of returns sent to me by Noble looked pretty impressive. So I ea builder kept readinguntil I got to the last page. The footnote at the bottom stated these were "hypothetical returns" and"GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT." Don't you just hate those annoyinglittle footnotes? As is usually the case, the devil is in the details.

My advice

Forex markets are risky and leveraging riskymarkets is downright dangerous. The only successthat is guaranteed in taking this approach is intransferring wealth to brokers. It's a no-brainerthese days to say the dollar has taken a beating.But to bet you are smarter than the futures marketis a worse bet than playing the tables in Vegas with whatever strategy you've picked up off theinternet.

The next time someone pitches an investment with both high returns and low risk, don't bite withoutreading the fine print and every footnote. I'm guessing that Noble Trading Group broke no law,which in itself is pretty sad.

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