Why Isn’t Past Performance Indicative of Future Results?

Why Isn’t Past Performance Indicative of Future Results?

There are subtle differences between a risk disclosure, a risk disclaimer and a risk statement. A risk disclosure informs you of the risks inherent in the endeavor you may be partaking in, prior to actually participating; the risks are being disclosed to you. A risk disclaimer informs you that any risks inherent in the endeavor you may partake in are risks YOU are choosing to take; the risks are being disclaimed or said another way relinquished back to you. On the other hand, a risk statement is more all encompassing. Risk statements can contain multiple clauses but in general they advise of the risks, disclaim responsibility for the risks and often times advise in a general way on how to treat the risks you may encounter.

 

They are however, all the same in that they contain one consistent statement; “past performance is not indicative of future performance (or results)”. It’s not? Why not? Don’t hedge funds tout their performance as reason why investors should send money their way? Don’t we hear over and over again that “buy and hold” in the stock market is the best long-term strategy because of the past perforce of that strategy?

The true meaning of this statement is in the protection it holds for the investor. It attempts to control greed. It can be explained with a simple, paraphrased statement. Just because our prior performance was good, and just because we intend to behave the same as we have in the past, that does not guarantee that our next trade, or our next 10 trades or any of our future trades for that matter, will have the same result as the prior ones. This may seem silly, but it is intended to prevent the investor or trader from taking excessive risks. If an investment could guarantee future performance, we could all just find an investment that performed well recently and dump everything into that investment. Nadex binary options and spreads have a safety net of limited risk in place, but if you follow a time-tested method and do not heed the warnings of past perforce and future performance by taking out-sized risk, even Nadex can’t save you from yourself. Of course past performance matters, but it guarantees nothing. You are the Captain of your ship, so stay off the rough seas by only taking risk you can stomach.

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.