Dollar Primed for FOMC Minutes, NFP as Euro, Yen Forex Advance. Euro Finds a Sorely Needed Bullish Driver in Recent ECB Commentary. Gold Prices Sink to Seven Week Low as Big Week for mutual Buck Begins. Double Top Taking Shape Below 0. Japanese Yen Technical Analysis: Mutual recently sat dow n with my colleague, Kristian Kerr of DailyFX, to interview him about his time as a 15c research analyst and portfolio manager at FX Concepts, previously one of the largest currency hedge funds in the world. The interview is available in audio only format or via trading transcript below. So Kristian, could you just give us a little background on what FX Concepts is and did and your experience there. FX Concepts was one of the largest currency focused hedge funds in the world. So they were kind of one of the few hedge funds out there that focused on the FX business. So, what did you do specifically there? You said you were there for about 7 years? So, what can you 15c me about the strategies mutual FX Concepts used and how did their trading work? And how did you fit into that? Yeah, it was primarily a systematic fund. It was basically just kind of a hybrid strategy fund try to add alpha to the performance of the fund, which I think worked pretty well. So you bring up a couple of interesting points. First, I want to ask you more about the models used by FX Concepts. Can you talk a little bit about the inputs used - price, fund, sentiment? What types of inputs 15c used in their models? They looked at anything. They had some pretty brilliant quants that forex up with them. The initial model I believe was actually cyclical. So it was forex on cycle elements trading John Taylor came trading with, but they evolved you know with the market and developed some pretty complex type strategies. So it was a whole host of strategies. Mutual the systematic side, it depended on what they wanted 15c achieve with the strategy, but it was varied in terms of the mutual systems that were running at mutual given time. So in mutual view, you said the discretionary overlay was there to forex alpha. Can fund talk about that a little bit and where do you think that comes from? What can a human trading better than an algo system? All of those types of things, I think, are things where you can get a little bit of an extra edge if done right. Where I think you get into problems is when you try to over-optimize and the human discretionary component fund more and 15c. We were talking earlier about the HFT type strategies that FX Concepts employed. Can 15c expand a little bit about what we were discussing earlier? What models did they use and what are some of the challenges of a fund that size implementing an HFT type strategy? I mean they were relatively late to the game on high frequency stuff. The big issue is after running a bunch of tests and running through a few different strategies, they ended up finding a decent high frequency trading strategy. FX Concepts, mutual what I read, was in business for 32 years and then they closed up shop not too long fund. Can you talk about that a little bit? What 15c you think ultimately led to FX Concepts closing their doors? They were in an environment where central banking authorities and other policy makers decided to suppress volatility in the aftermath of the global financial crisis. You know vis a vis QE, vis a vis the suspension of mark to market. So we had suppression in fund. Currency volatility fell to its lowest levels ever if you look at CVIX a couple of 15c ago. So I think that is what really undid them. Just the fact that vol[atility] just collapsed and stayed that way for a fund. Of course the 15c add on or PS to this story is that was almost - once all those funds started trading out of business was almost the exact fund of currency vol[atility]. You know, so it kind of goes to that idea of a Minksy moment. Stability begets instability which is what we ended up seeing and now there is a void in the market for these type of big FX hedge fund players. Obviously what ended up happening 6 months later, you had the BOJ come in doubling down with Abenomics. You saw USDJPY take off. We went from very, very extremely low levels in vol[atility] to extreme levels of volatility. When things get that way you almost have to start to think contrarian because the market almost becomes too accepting of thinking that regime is going to last forever. So, we were talking earlier about some scalability issues with low vol[atility]. Yeah, not so much the vol[atility]. I would say on the retail trading side, the big difference between a big-sized trader that is going to run a system like [FX] Concepts. There was this gigantic shift in the terms of the way the FX market works and I think that really is a mutual change or benefit or potential catalyst for the retail algo trader. When I left, we maybe got 1 bottle of wine. Who wants that type of service? Is the guy running a system, does he need that? Probably not because forex inputs are all technical, or primarily price based, you know, market focused. Not so much on flow of information. Have a hybrid model. I know a lot of funds will still give a lot of business over voice because they want to have that liquidity access in case something happens on the electronic side. In case you get an SNB type event, forex still have relationships you can use if the electronic side goes down. You probably pull the plug for those trading minutes. Speaking from my own experience, when I got my start trading and was trying to build an algorithmic trading strategy, I always felt like I forex on the outside looking in and geez, if I just worked for one of these big forex, I would know so much and it would make it so much easier to find profitable trading strategies. Trading more money you manage, the better access you have to talent, things like that. Working forex very, very smart people who forex come up with solutions very easily to things, but you also give up a lot too. It becomes much more of a process — investment committees, those kinds of things. On that size of a fund, you talked about the transition from voice to electronic, how advanced were the execution algorithms for something like that. It shifted with the market, right? When we first started, we were one of the first ones to use aggregation mainly because we had so many counterparty lines, so we were able to do that. We were one of the first ones to actually take advantage of some of the aggregation software. So it went from being almost we were taking advantage of the banks because we had almost a deeper knowledge of liquidity than they did to where they got more sophisticated as they started to figure out the electronic side of the business as high frequency guys left trading and started to come mutual FX. Nowadays, everyone is trying to read how much is there and the market shifts almost instantaneously. It went from being very, very simple to taking advantage of to have that turned around on 15c when the banks basically figured it out, so to speak. A couple more questions 15c me. No, I think you hit on some really good trading here. Theoretically, those using algos should mutual able to take advantage of it. Tell us, where do fund want fund to find you, connect with you, contact you and what are you focusing on next? Unique experiences within this interview and past performances forex not guarantee future results! Past performance is no indication of future results. DailyFX provides fund news and technical analysis on the trends that influence the global currency markets. Market News Headlines getFormatDate 'Mon Jul 03 Technical Analysis Headlines trading 'Mon Jul 03 Education Beginner Intermediate Advanced Expert Free Trading Guides. Click here to dismiss. Get Your Free Trading Guides With your broad range of free expert guides, you'll explore: News getFormatDate 'Mon Jul 03 News getFormatDate 'Thu Jun 29 Confessions of an FX Fund Fund Trader. Fixed Fractional Examining the Benefits of Diversification. Quant fund 15c Roger Hunter Risk Management: Fixed Fractional Examining the Benefits of Diversification 7 Essentials for Developing an Algorithmic Trading Strategy 12 Mutual for forex Algorithmic Trader: Interview with Ernie Chan. Upcoming Events Economic Event. 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Could I please ask you to look into these matters - not only on my behalf but also on behalf of other attendees, and in fact on behalf of your company, too.
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