When choosing a forex managed account, one is often advised to look for a consistent and long track record, continuous manager’s tenure and other similar stuff.  The idea is to make sure that the manager is able to consistently perform over long periods of time.  While this check is obviously valuable with regard to being certain that your manager doesn’t belong to the take-the-money-and-run variety, it is not very indicative of future performance of your forex managed account.  In fact, a monkey could pass it. 

Firms and managers with a 5-year track record of success are considered reliable.  A decent track record by any standards is a five-year record with at least four winning years.  However, there is always this little standard disclaimer, “past performance does not guarantee future results.”  

Suppose that your forex account is managed by a monkey.   The monkey pushes buy and sell buttons the best it can. By the end of the year, it makes either a loss or a gain.  It really tries hard, but since the monkey is severely challenged in the currency exchange department, it only has a 20% chance to make a gain every year.  In other words, it loses four years out of five.  Can the monkey get a decent track record?  No way, it is almost guaranteed to lose and go out of business long before the end of five years.  

But here is the question that turns the perspective: how many monkeys need to have started their business of running forex managed accounts five years ago in order for one of them to have a decent (as defined above) track record now?

They are monkeys, they can’t win.  However, believe it or not, if they try many times, the average number of monkeys will be only 625.   If 625 monkeys simultaneously start managing forex accounts, in five years all but one will go out of business, and the remaining one will have the reputation of a genius manager.  Obviously, its chances of winning next year are still only 20% (remember the disclaimer?), but the track record is excellent.

Humans are better at forex than monkeys.  If a human-managed forex account has equal chances of winning and losing in any given year, one out of every 16 managers will have a decent track record in five years, and one out of 32 will have an impeccable one with no losses in five years.   

Now consider the annual number of new entrants to the forex managed account industry.  Every year hundreds of new managers and funds appear.  Those that are consistently successful gain prominence, the rest go into oblivion – often to appear under a new name. But the disclaimer still applies.  

This is not to say that managed forex is necessarily bad.  In fact, I believe that a managed forex account is an essential part of one’s portfolio.  I’ll discuss that separately.  The above simply puts a proper value on the track record.