The latest scandalous news from the hedge fund world, the lawsuit against SAC Capital founder Stevie Cohen by his ex-wife Patricia, is shocking not for its salacious details but rather for its accusation that Mr. Cohen traded on insider information. The news is utterly depressing because if true, it only serves to confirm the commonly held notion that hedge funds are nothing more than graft vehicles that exploit other investors with an unfair edge and furthermore that success in the markets can only be achieved through cheating.

I have no idea if the accusations against Mr. Cohen are true (although rumors of insider trading have dogged SAC for years), but I do know with reasonable degree of certainty that there are great traders who make their money the old fashioned way-- they earn it. Paul Tudor Jones of Tudor Investments is one such case in point.

How do I know that Mr. Jones is an honest trader? Because he loses. In fascinating PBS documentary that recently surfaced on Youtube entitled Trader, Mr. Jones is dutifully followed by a television crew over a period of months as he trades everything from the kiwi dollar to the S&P futures as markets careen towards the 1987 collapse. In one particularly poignant scene, Mr. Jones is early in shorting the raging bull market of the late 1980’s and has to cover for stinging 5% loss as the camera records his every movement. It’s precisely at that moment that you know that Mr. Jones is for real. He doesn’t shy away from his mistakes and though clearly upset he takes the losses with professional equanimity and later on in the film rallies to recoup his losses as his bearish bias is finally rewarded.

What is the easiest way to tell if a trader is a liar and a fake? If they talk only about their triumphs and promise you a never ending stream of uninterrupted profits. That’s why I am always wary of all investment gurus who talk only about their winning positions and never admit their losing calls. Real traders lose money all the time. Real equity curves are jagged and do not follow a 45 degree angle and real investment returns are like real life -- a few steps forward and several steps back.

Unfortunately as human beings very few of us are prepared to accept that reality. While almost everyone pays lip service to the word risk, few really understand that it is simply a polite synonym for the word loss. Traders who can’t stand loses never win in the end and those who tell you they don’t lose are lying and cheating.

Boris Schlossberg serves as director of currency research at GFT, and runs bktraderfx.com.