There are hopes that the recent tumble of the Chinese yen will signal the boost in volatility in the Forex market, which is a long-awaited situation. However, there are fears that the boost may be too late for the funds that have already been lost this year. Also, any boost to be recorded may not be huge enough to maintain any profit that remains.
The prolonged calm being recorded in the currency market makes currency traders that depend on wild movement in the Forex market to count themselves unfortunate; the calm is due to the actions of central banks in moving in tandem on monetary policy and the low-interest rates.
AUDNZD has been one of the strongest trending forex pairs over the last decade
The yuan experienced a plunge on August 12 and went lower than 7 per dollar; this brought about a vol-shorthand for the volatility gauges that are embedded in currency options to their eight-month highs.
The spike, however, did not last for long as confirmed by a Deutsche Bank three-month index, which indicates a slip in the volatility weighted across all major currencies back to 7.52 following a surge to 8.11 just moments after the move recorded by the yuan.
The above recorded another volatility gauges episode for currency investments funds, which first briefly flickered to life and later subsided.
Such vehicles that have their focuses on the foreign exchange (which is the buying and selling of currencies), swaps and FX futures have dwindled over time. They are good opportunities to make money in the currency market. Up to $2.34 billion was withdrawn from FX mutual funds last year, which is the highest ever recorded since 2015.
Morningstar, a fund research firm declared that the outflow of the fund has reduced in recent times and the least outflow was recorded this year, which amount to $159.08 million from January to July. Be that as it may, the total net assets at global currency mutual funds have reduced to $6.86 billion, and the decline had been consistent from one year to another. The total net assets, however, peaked at almost $18 billion in 2012.
Virtually all major currencies are experiencing a bump along with their record lows, and this may tempt more fund manages to give up.
Axel Merk, Merk Investments CIO declared that "If the audience doesn't embrace it, eventually you have to pull that plug." His $6.7 million funds were among the ten currency mutual funds that shut this year after the closure of 17 in 2018, according to Morningstar. Merk also has another FX fund and declared that this year would be better than 2018 consequent of the recent increase in volatility. He, however, added that "It's not like our phone is ringing off the hook."
Hedge funds are created to borrow, and then invest for impressive returns received a very hard hit also. BarclayHedge index stated that only 49 now trade cash forwards and currency futures actively in the interbank market. This number was initially 145 as at 2008 and dropped down to 533 by the end of 2018.
A return of up to 2.38% has been recorded this year in currency-specific hedge funds. This that restricts their investments to currencies will have limited profit compared to those that can invest in other assets.