It is almost ironic that factor investing became popular in equity markets just when currency investors learned the hard way that factors can stop working altogether. The most popular anomalies (aka factors) that are traded in the currency markets are the carry trade (buying currencies with high interest rates and selling currencies with low interest rates), momentum trades, and the valuation trade (based on purchasing power parity). All of these factors have been described in the literature and shown to make substantial profits in backtests. And just like equity market factors, many of them become less effective after they have been published and lose a large chunk if not all of their profitability.
Central banks killed currency trading
Central banks killed currency trading
Central banks killed currency trading
It is almost ironic that factor investing became popular in equity markets just when currency investors learned the hard way that factors can stop working altogether. The most popular anomalies (aka factors) that are traded in the currency markets are the carry trade (buying currencies with high interest rates and selling currencies with low interest rates), momentum trades, and the valuation trade (based on purchasing power parity). All of these factors have been described in the literature and shown to make substantial profits in backtests. And just like equity market factors, many of them become less effective after they have been published and lose a large chunk if not all of their profitability.