FXCM's Enhanced Dollar Index Programs provide a simple way to speculate on your forecast of the medium-and long-term future of the dollar, similar to currency ETFs (Exchange Traded Funds). Unlike currency ETFs, which are index-passive and do not anticipate market changes, the FXCM Enhanced Dollar Index Programs use sophisticated,
backtested strategies designed to minimize loss. With higher leverage, our aim is to provide a higher return on your investment, but without the equivalent risk.**
The Example
You invest $5,000 in the Dollar-Bullish Program. Our index aims to mirror the Dollar Index as closely as possible. Therefore, if the Dollar Index rises 10%, and we have successfully replicated the Index, your investment would increase 15% (as a consequence of the higher leverage ratio) for a floating profit of $750.**
But what if the Dollar Index falls 10%? If you were invested in an ordinary passive index program that was set at a 1.5:1 leverage ratio, your investment would decrease by 15% and you would lose $750. But our enhanced fund aims to minimize your losses. In this case, our goal is to keep your loss below 15%.
How does it work?
The FXCM Enhanced Dollar Index Programs, developed by the creators of the renowned FXCM Sentiment Programs, combine the stability of a passive index program with market timing and directional strategies; likewise, it is based on FXCM’s proprietary system, the Speculative Sentiment Index. FXCM’s exclusive “commitment of traders” measure tracks the positions of thousands of traders in the major currency markets and is designed to provide fast alerts to trend breaks and reversals in the major currency markets. With this early-warning system on board, the Dollar Index Programs can make timely adjustments in their portfolio of currency trades in order to minimize losses on the losing side of a position.
Let’s Be Clear
The FXCM Enhanced Dollar Index Programs are not passive index programs. If an investor chooses a Bullish Program and the market is or becomes bullish, the investor will profit to the extent the index rises, just as with any passive index program. But with higher leverage, the FXCM Program tries to return a profit one and half times what the standard index would generate.* If, on the other hand, the dollar depreciates, the investor will still lose money; however, the program’s goal is to keep the losses lower than the investor would otherwise suffer under a passive index plan. The reverse is true for the Bearish Program.**
Does It Work?
Yes. As you can see from charts, the Dollar Index Programs were successful in reducing losses from 50% to 70% in four of the five years they were subjected to a theoretical system of back-testing.***
Note that in 2006, the system did not perform as designed. The reason: volatility in the currency markets was virtually absent; in fact, forex volatility in 2006 hit a 30-year low.***
*Without proper risk management, a high degree of leverage can lead to large losses as well as gains.
**The Bull and Bear programs of the FXCM Enhanced Index Programs will perform contrary to each other as the seek to profit from opposing views of the dollar. Through the use of active strategies, the FXCM Enhanced Index Programs aim to bias returns to the upside, i.e., to provide larger gains if the currency in one program moves in its selected direction, while minimizing losses in the counter-program
***This claim is based on a comparison between the actual currency index and a retrospective, back-tested analysis of the FXCM Enhanced Index Programs during the relevant time period. Hypothetical performance results may have many inherent limitations, some of which are described in
the risk warning. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical
performance results and the actual results subsequently achieved by any particular trading program.
One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points that can adversely affect actual real trading results.
