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FX FX MANAGERS again after a long negative phase?


RG Strategies with long-term sustainability will always exploit or capture some sort of investor preference or risk aversion. Carry is a perfect example – you are paid a premium to take a risk. The carry strateg y will come in and out of favor but we believe it is a long-lasting rule. However, filters on top of strategies like the carry strateg y have a shelf life. In the late 2000’s everyone caught up to the idea that putting a volatility filter on a carry system would iron out the big drawdowns. The vol filter has basically not worked since then.


FXTM Do you use any form of optimization? If so, how do you make sure it doesn’t create curve fitting and confirms robustness of the model?


RG We do not employ portfolio


74 FX TRADER MAGAZINE April - June 2014


optimization, because portfolio optimization makes correlation forecasting a focal point of the portfolio, and correlations between financial time series are notoriously unstable. When we went back to the drawing board on day 1 at ROW, the first thing we knew was


optimization would play no role in our investment process. If


when markets are stable, but we expect to more than make that back when they are not.


FXTM What should an inexperienced trader watch when choosing a time frame?


that portfolio


RG Inexperienced traders look at the narrow b i d - o ffe r spread of FX markets fig ure can


and they their


chang e mind


a lot and be ok . They think a sma ll spread is the same as no spread.


If


you are new to FX and plan to trade in and out of


positions e very day as


you look at current research on “robust” optimization, the focus is on fuzzying or shrinking the sharp edges of a correlation matrix…but we just cannot be sure how such a system will perform under extreme stress. It is analogous to our earlier trader


example – perhaps we


give up a small bit of expected return by not using optimization


RG 2.5, 5.


a “pric e - taker ”, be aware of what that adds up to over a year ’s time.


FXTM What is the average leverage that you normally use? And the maximum leverage ?


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