FX MANAGERS FX
Te systems are designed to adjust to changing market conditions.
JW:Do you favor any particular time
frame in your strategies? What is your average trade duration? MM: Conquest Macro FX is a
short-term strategy with average trade duration of 6 days. We believe that long-term trend-following returns are commoditized and there is no alpha to be derived in that space. Consequently, we can achieve a higher Sharpe ratio by being more short-term oriented.
JW: What should an inexperienced
trader watch when choosing a time frame? MM: Each situation is specific, but I
can tell you that you should not trade a strategy for which you do not have the time or resources.
JW: What are your average and
maximum leverage levels? MM: Our average margin-to-equity
ratio over the past five years has been roughly 7.50% and has been below 25% more than 99% of the time over the past five years We maintain a strict margin limit of
33% to limit tail risk due to excessive exposure and position concentration. Tis limit is rarely even approached.
JW: How many execution brokers do
you use? How do you split execution between electronic and voice? MM: We use a wide variety of
counter-parties, certainly in double- digits. Te majority of our execution is voice or agency execution, although we use electronic execution for a significant percentage of our market orders.
JW:What historical data do you use in
developing your strategies? MM: We have tested our current
strategy and market portfolio for the period beginning with January 1990. Tis testing period is representative of a wide range of market conditions, provides a large enough sample size per system and includes difficult trend-following periods, such as 1994 and 1999.
JW: Which tools do you use in the
strategy development process? MM:Te strategies are programmed
using our own proprietary model evaluation system and positions are managed using our proprietary trade generation and entry database. Tese two databases read the same decision code, so models developed in the testing database translate directly to the order generation database. We also use an “off-the-shelf ” package for additional validation of the testing results.
JW: How does liquidity impact the
efficiency of your strategies? Have you already explored to what AUM limit the strategies would allow you to grow to? MM: Short-term strategies are heavily
dependent on liquidity. Hence we restrict our strategy to the most liquid currency markets. Trade size does not grow linearly with assets, however. We have devoted a significant amount of research to signal diversification and have a large library of systems that have been developed over time. With the constant evolution of our trading strategy, we have been able to diversify the number and type of models we trade. I believe that the strategy can manage
at least $2 billion before there would be any effect from trade size.
JW: What is the single biggest
strength of your team? And is there any particular advance that has taken place since Conquest started that has particularly benefited your trading? MM: Te biggest strength of the
team is the diversity in background and experience that each person brings to the table. Our two senior research analysts both have trading and execution experience. Our head trader worked as a sell side options dealer. Our COO has worked with a variety of hedge funds at a large investment bank. Te largest advance was the
development of the Conquest Risk Aversion Index. Te ability to quantify risk appetite has made it possible for us to allocate risk to our portfolio and between our strategies more effectively.
JW: Can you give us your feeling
about the evolution of the EurUsd over the next 6/12 months? MM: Te continued instability in
Europe and the departure from the Euro as a reserve currency suggest that parity to the Dollar is back on the horizon.
JW: What’s the best advise you
would give to an individual trader and to a semi professional trader who wants to enter the FX fund management industry? MM: It is a very exciting and
rewarding space. In general, the most important criteria for a successful trader are discipline with entry and exits and the patience to let trades come to you rather than chase them or look for them. Overtrading and poor discipline are the two most common causes of losses and blowups.
FX TRADER MAGAZINE July - September 2010 51
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