Taming the Beast: Wall Street's Imperfect Answers to Making Money

Summary

• Alternative investments, like currencies and commodities, have long been the domain of billionaires. But, increasingly, retail investors are getting involved. While alternatives can be very risky and hard to understand, that hasn’t stopped investors from looking for a good score.
• Success at currency trading involves a high degree of forecasting, and few are consistently right. With foreign exchange (known as forex or FX), you can take out a contract to bet that one nation’s currency will rise against another’s. Since the world’s currencies were decoupled from their postwar peg to the dollar in the 1970s, FX has become especially risky, and prices fluctuate wildly. All manner of forces influence how currency investments play out, from interest rate changes to economic reports. While forex is mostly practiced by banks, institutions, and corporations, a smaller-sized contract is now available for individuals. New currency mutual funds did not take the hit the S&P 500 did during the financial crisis.
• Commodities—metals, energy, food—are just as risky and volatile. Rice, for instance, fell from a peak of $25 in 2008 to $11 in 2010, after many undulations in between. From the late 1990s until the financial crisis, commodities were soaring. Some predict they will rise for a long time, thanks to demand from China and other emerging economies. A commodities futures contract has two parties on either side of it: one is betting that the commodity will rise, the other the opposite. So ...