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1.800.352.0436 | info@informedfunds.com
Understanding Real vs. Hypothetical Performance
If you have done much research into purchasing a trading system or other managed account offerings, you have probably run across many sites which show 100% plus performance. Generally when returns are advertised which seem too good to be true, they are, and the reason why is something which is known as hypothetical returns.
Hypothetical returns, which are also referred to as back tested results, are based not on trading performance which was generated on a live account, but rather results that would have been generated by a strategy if it would have been traded on historical data. The problem with this is that hindsight is 20/20, meaning that a money manager or trading system which advertises hypothetical results, can potentially advertise pretty much whatever results they would like.
Here at Informed Funds, we only post live trading results, meaning all performance results you see on this site were generated on real money.
Multiple Trading Strategies
Informed Funds has access to a variety of strategies. This allows us to promote the funds that we feel will perform best in the current market environment.
Trend StrategiesMix of medium to long-term strategies focusing purely on market trends, by identifying extreme levels and shifts in market sentiment.
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Range StrategiesThis program is composed of medium-term strategies that look to catch market reversals and take advantage of ranging market conditions.
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Dynamic Multi StrategyA range strategy with the trend strategies program, balancing performance across both trending and range market conditions.
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Realistic Return Expectations
SAC Capital, often referred to as the best hedge fund in the world, generates average annual returns of somewhere around 40%. This return has allowed the company to cater to only the wealthiest of investors, and to accumulate over $15 Billion.
With this in mind, consistent returns of 100%+, which are sometimes seen advertised by fund management companies and firms selling black box systems, are simply not realistic. Instead, these firms rely on “hypothetical performance” which, as outlined above, often times do not line up with reality.
Evaluate both Risk and Return
Once you have determined that the performance results that you are viewing were generated on a live account, one of the next factors that investors should consider is the risk that was taken to generate those returns. While past performance is not necessarily indicative of future performance, looking at things such as the maximum drawdown a strategy has experienced, and the amount of leverage* that is employed, can give investors a better understanding of the type of risk that was taken to generate the advertised returns.
Understand Who is Holding the Money
It is the important to understand who the entity is that ultimately holds your funds. While financial strength and regulatory environment surrounding the firm where your money is held does not protect against losses due to trading performance, your account should be held with a financially strong and regulated firm, for greater transparency of business practices.
At Informed Funds, all client funds are held with Forex Capital Markets (FXCM). With over $100 Million in liquid assets and regulated offices in 6 countries they are one of the largest forex brokers in the industry today. To learn more about FXCM visit their website at www.fxcm.com.
Fee Structure
It is important to understand how the strategy you are invested in is compensated, so you can understand where the interests of the firm that is trading your money lie. It is our opinion that investors should be more wary of funds that earn money from commissions, or other transaction based sources. While not always a bad thing, this type of compensation model may increase the incentive for the money manager to trade to generate transactional revenue, rather than for the sole purpose of increasing account performance.
At Informed Funds, we charge what we consider to be the industry standard of 2 and 20, meaning a 2% yearly management fee and 20% of profits. In certain instances where we are compensated partially based on rebates or commissions, this will be clearly denoted on each client’s trading statement.
* Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Please see our full risk disclosure here.
** Without proper risk management, Currency Trading has a high degree of leverage which can lead to large losses as well as gains.
** Without proper risk management, Currency Trading has a high degree of leverage which can lead to large losses as well as gains.