Over the last two years, investors have pulled speculative capital out of risky assets at an unprecedented rate. In fact, analysts estimate there is currently billions of dollars of investment capital on the sidelines as hedge fund in forex are still unsure of the long-term economic outlook for the United States economy.
The Federal Reserve, of course, has set interest rates at an absurdly low level, which means investors who have capital in very safe, low-risk investments are earning virtually nothing. Capital has begun flowing back into higher risk investments such as hedge funds this year as the global economy strengthens. One specific market where hedge funds are continuing to grow is the foreign-exchange market. 4 trillion today, and this figure is expected to double in the next 10 years. The forex market is attractive for many reasons, but chief among them for larger hedge funds is the deep liquidity and cheap transaction costs.
These two features significantly reduce the cost of doing business for most hedge fund managers. The FX market is a 24 hour market that never stops, and it moves extremely fast. The high leverage available in this market leads to quick, sharp profits, but it can also lead to destabilizing losses in a short amount of time. If a forex trader or investment manager is looking to start a hedge fund, there are several key steps he needs to take.
Build a Track Record This is the key to building a fund. Hedge fund development is largely based on an investment manager’s ability to raise capital from investors, and it is very difficult to raise capital from qualified investors without at least a two year track record. Get an Audit Most qualified investors will want to see fully audited trading records in order to assure that the results are real and accurate. This hedge fund audit will cost thousands of dollars and should be done by a reputable auditing firm who carries weight in the investment community.
Register With NFA The National Futures Association regulates forex trading activities in the United States, and all forex hedge fund managers need to pass the Series 3 and pay a small registration fee in order to be in compliance with the NFA. Create a Disclosure Document Once you pass your Series 3 and have your strategy developed and tested, you are ready to begin raising capital. However, you will first need to hire a hedge fund law firm to help you write your disclosure document. This is an NFA-regulated document that fully discloses all risks to any investors. It includes detailed information on your personal background, investment approach and risk management parameters.