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FX MANAGERS RG


10 years ago the answer to this question would have been focused on position sizing, but we now know that managing risk is


a multi-faceted undertaking.


We do of course manage position risk, at the trade level, strateg y level, and portfolio level, with a battery of statistical, leverage, and loss checks to guide portfolio output within expectations. We manage model risk by having an intuitive understanding of what type of market is best and worst suited for each of our models, and balancing them in a way where we are not forced to “stop out” of a strategy based on some arbitrary loss constraint. We manage execution, liquidity, and geopolitical risk with a portfolio manager – Jeff Weiser. His mandate is to simply reduce risk when geopolitical risks are outside the model’s information; i.e. to minimize our maximum regret.


FXTM Do you use a blend of strategies or one only ?


RG We use as many different strategies


as we can intuitively


justify…and our main research agenda is to add strategies. As we have seen with trend and carry, strategies do not die, but they can go out of favor for long periods of time.


RG We spend a great deal of time trying


to answer this question.


Ideal market conditions are those that happened in the past. We focus on “most challenging” market conditions –do we have the right mix of strategies to avoid a large drawdown?


If we have


done our job right, we should be able to perform pretty well in any environment.


FXTM Can you give us an example of a memorable winning trading decision?


RG Short RUB in early 2014 and short TRY in late 2013. These trades are memorable because they illustrate the work we have done since we launched. In 2011 we were not as well balanced as we should have been, and needed carry to perform well in order to have good performance. Over time we got better at building filters to inform our models when their trades should be more or less successful, and grew less and less dependent on beta to fuel our returns. The price action over the last 12 months has been quite bad for the 2011 vintage of our


FXTM Do you use Emerging Markets currencies? And do you think individual traders should use them, considering they don’t have to worry so much about liquidity issues?


RG We were early pioneers in trading large systematic $$ in EM currencies, so we definitely think traders should use them. EM currencies are highly liquid financial instruments that just happen to be less liquid than major currencies, which are the most liquid financial instruments on earth. skills


But there are critical


currency risk, especially on the systematic side.


needed to manage EM For example,


empirical (backward-looking ) measures of risk were saying ARS had a 4% annualized volatility in the days before its devaluation… and a yield of 100%.


This is


how inexperienced quants blow themselves up!


FXTM Do you think that every strateg y loses its accuracy sooner or later, or do you believe in long lasting market rules? Have you ever found a strategy that became profitable


FX TRADER MAGAZINE April - June 2014 73


FXTM What are the market conditions that you consider ideal, and which ones are the most challenging, for the performance of your strateg y?


FX


models, but 2013 vintage was able to handle the poor environment for EM carry and profit from some of the big anti-carry moves, like short RUB and short TRY.


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