One is a steady growth in returns, year on year, such that share price coheres with this grows at a sufficient rate and with sufficient stability that compounding results for a significant investment (that is, steady growth in a condition for coherence and fast growth based on future projections may retrace).
One needs to understand what it is that the company does. Can a company centered around forex trading ever fulfill these criteria ?
Forex trading is an understandable activity, except that it may be problematic to formalize into systems. That means there may be issues explaining it, unless it can be formalized, and assuming that formalization is explainable. Now it is possible to formalize the process of trading, it is done all the time.
But it needs to be done in a manner consistent with the first criteria, that is, steady return growth over time. What I mean is that such a company needs to have the returns from forex trading profitable over time.
Why, because a profitable forex trading company could be the most structurally pristine form of a company and a set of related companies (this set may be a condition by which individual companies grow over time). The leverage in forex means that the investments needed to generate returns are in theory relatively small.
Except that the (possibly always ongoing) R and D to produce a way of generating these returns needs to be taken into account, as the forex market arguably does not generate returns like this, at least in a consistent way, which is necessary to fulfill the conditions generally seen in the market to generate compounding returns on share price valuations.
Note as well, there is a belief that forex is a zero sum game over time, thus it cannot produce a such increments from forex trading itself. However, R&D has paid off in many industries, precisely to produce these kind of returns from next to nothing.
One can produce systems, one can sell instruments, but the issue is the returns from forex trading. One can note that systems and instruments based on such profitability would be of particular value as assets and as generators of value for the income statement. If one had a system that was profitable over time, one would probably not want to sell it though, as the cumulative returns would be astonishing.
A system is essentially an attempt to exploit regularities more efficiently than a human trader can, up to a point where they are simply following a system. However, regularities are dissipated by the market. More precisely, regularities may not be a consequence of underlying processes, they are simply the imposition of a kind of structure by traders.
The underlying processes may not be regularities. Their effects seem like regularities for the same reason that patterns seem like regularities. That is, trading on regularities is a way of trading on processes, but the extent to which they remain regularities, is indeterminate.
That is, the decay of regularities is precisely indeterminate. Precisely because these are not regularities. Function trading is trading on the process by which regularities appear, but it is still not trading on process.
The indeterminacy of function trading is that the decay of functionality. Is this a problem all the way down. Probably because the market exists to remove any regularity such that it is tradable, that is such that one can establish a value differential over sufficient time to make it worth while to trade. Those processes are such processes. That is why contrarian approaches work in markets, up to the point where they do not.
Trading shows one the depth of process flow, and that is a possible route into some kind of profitability. Any profitability is useful as money can be pumped with regularity into equities, which one knows can grow in such a way, in usual market condtions.
One needs to trade on process itself. That is on the depth of process. When process is deep, one trades, when it is not, one does not. News trading is arguably a shallow process event, though it may initiate process. In all events this brings the trading activity for such a company back to the human for now.
All this said, it is possible that companies which use the dynamics of creative MOATS with forex could generate something like those potential returns, now or soon.
Because so many use forex, it is part of that social revolution that, like the act of trading itself, the outcome is unknown, and in the unknown is freedom and of course those creative MOATS. Creative MOATS thrive on this, but in forex is a way of grounding their lack of stability and perhaps understandability in a structured way in the act of trading itself, given certain conditions.
© 2011 Guy Barry - All Rights Reserved.
