Forex - MoneyShow.com

TRADERTALK
weighting also smooths out
volatility in portfolios. Thus, we
have imposed investment limits on
a currency by currency basis.
Currently, the maximum
investment limit we have for each
G-10 currency ex-US Dollar is 7%
and 4% for each emerging market
currency. By prospectus, gold has
a 10% investment limit.
However, by prospectus, the US
Dollar index can receive 100%
allocation if it is in a raging bull
market or is having a sharp rally
because we would like to
participate in those events as
much as possible. It would be rare
for us to be completely out of the
US Dollar Index or 100% in the
US Dollar Index. We can also
expose the fund to 100% short
term safe havens in times that
excess volatility is occurring. The
increasing or decreasing of each
position happens when we receive
a signal from our model. The
adjustments are incremental to
reduce the amount of noise
trading when volatility is
occurring.
What key steps do you take to
mitigate the various types of risk
associated with your investment
style?
By nature, the inclusion of all
types of currencies including the
G-10, emerging markets, gold,
and US Dollar Index gives us an
actively managed single solution
palette that advisors cannot find in
the United States right now. The
fact that we are not strictly an
anti-US Dollar play only helps
mitigate risk. In addition to the
currency choices, the allocation
limits, predisposed stop loss
triggers, hedging techniques,
covered call writing, and the
ability to retreat to 100% safe
havens gives us many levels of
insulation in nasty markets.
162 | january 2010 e-FOREX
Do you expect to see significant
growth in currencies being
packaged in the form of new
exchange traded products and
what shape might these take?
Well, we don’t see much more
need for duplication of single G-
10 or really liquid single emerging
market currencies. However, we
believe the market may see many
baskets of various currencies.
Wisdomtree has many currency
baskets that have been in
registration for quite some time.
Of course, it will take demand
from advisors and investors to
make currency ETFs successful.
What's the average length of time
that you hold your positions for?
We don’t limit ourselves to time
holding periods. When we receive
a signal or see an opportunity –
we act. Some of the biggest
mistakes made by advisors are
adhering to a predisposed time
period.
>>>
What advisors should be adhering
to are price periods – meaning, if
the price of an item reflects a trade
that is capturing positive return
with acceptable amounts of
volatility, then it makes sense to
participate whether the time is a
week, month, or year. In volatile
markets, our holding periods are
compressed. In streamlined
markets, our holding periods are
extended. We would rather have
more turnover with less volatility
and draw down, than little
turnover with more volatility and
draw down.
Risk Management, design and
back testing of strategies and
optimising trade execution are
just some of the areas where
trading tools and technology are
now making a significant impact
on how many firms trade
currencies. How important is
trading technology to your own
team and in what ways does it
help you maximise trading
operations?
Joe Garbade
(compliance/operations)