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FX MANAGERS

Interview with Frederic Bettan  

CEO – Swing Capital

fx managers swing strategy Frederic Bettan

 

Frederic Bettan talks about Swing Capital and their proprietary Swing Strategy, a hybrid - systematic signals / qualitative overlay risk management - contrarian and relatively short term FX program. A program, which aim is to catch intermediary trend exhaustion swing points.

FX Manager

Swing Capital

Strategy

Swing FX

Location

Montreal

Assets Under Management

74M

Type

Managed accounts

Style

Hybrid contrarian 

Instruments

FX spot

 Traded Currencies

Majors

 

FXTM

How long have you been trading foreign exchange for and what first attracted you to this industry? Tell us about your career evolution?

FB

Two of the three managing partners at Swing Capital have a combined 40 years experience in FX trading (market making and proprietary trading); I am one of them. The entire multi-tasking treasury environment was very attractive in the nineties, on top of being an exciting and rich learning ground in trading and risk management.

FXTM

What do you particularly like about your job?

FB

Being able to use my unique expertise to manage a large pool of institutional assets and profit from it by capitalizing on market dysfunctions.

FXTM

In which way is trading currencies different from trading other financial instruments?

FB

Although the FX spot market has evolved to be very easily available and scalable to many types of participants which add to the overall liquidity of the market, and although this plain vanilla instrument is used every day by individuals and corporations around the world, every one can trade it or use it differently. Its availability, the way it remains easily leveraged and accessible makes it a unique market where every participant look for something different.

FXTM

When and how was the company born?

FB

Three partners, two with extensive hands on FX market-making and proprietary trading experience and one with a crucial technological expertise got together with the project to systemize a successful trading method. After many years of back testing and live trading, we got seeded and fine-tuned the system to offer a unique Hybrid (systematic signals-qualitative overlay risk management) and short term FX product very liquid and transparent for qualified investors.

FXTM

How is the company structured today in terms of headcounts and offices?

FB

We have two offices, (Montreal and San Francisco). All the trading is done in Montreal where we manage the whole portfolio of international clients. The research and development and all other technological aspects are done by our team in California headed by our third partner Robert Sipko.

FXTM

What do you consider as being the key positions in an FX Management company?

FB

It depends on the structure. The key role in any management companies should be overseeing three different yet crucial aspects of an investment corporation: 1- the Client portfolio 2- The actual portfolio and 3- the research and development department.

FXTM

Which authorities regulate the company?

FB

Swing Capital is regulated by the AMF and caters to qualified investors. Swing Capital is in the process of being NFA regulated .

 

FXTM

You are in charge of the currency program. How do you describe your investment strategy?

FB

First of all it is unique hence our number one selling point, the fact that we have remained low to negatively correlated to both standard and alternative portfolios. More precisely we have a hybrid (systematic signals / qualitative overlay risk management), contrarian and relatively short term FX program. In short our program aims to catch intermediary trend exhaustion swing points.

FXTM

How did you create and develop your current FX management strategy? Has it changed over time, and if yes, for what reasons did you decide to change it?

FB

It is important to understand that we built this model from the bottom up. Two of the three  managing partners were market makers and proprietary traders in the FX market. For decades, we used a set of parameters with success. We met our third partner who completed our trio brilliantly by bringing an extensive and unique technological background enabling us to systemize our successful trading background into a state of the art model.

The core of the model itself has never changed and is applied to a multitude of currency pairs of which we actively trade the most liquid. Our methodology is hybrid and composed of a systematic signal generator which is paired by a qualitative risk management overlay with a strict set of parameters. We spend a valuable amount of time on a regular basis to improve the risk management parameters and when need be we modify a few parameters on a yearly basis keeping the core systematic model unchanged.

FXTM

How do you manage risk in the company?

FB

Our risk monitor looks at risk on a per position basis and within the framework of the portfolio perspective. We have a hard stop loss on a per position basis from inception of every position.

FXTM

Could you give us an example of a trade that you might have implemented in the past but that you would not repeat today? What is the most important lesson you learnt from past trading decisions?

FB

The most important lesson we have learned since we launched our program in 2006 is that we should follow it without too much intervention since it was built with robust risk management and diversification parameters.

FXTM

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

FB

Most challenging: trending low volatility. Most favorable: volatile and range trading.

FXTM

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

FB

The decisions are systematic. The qualitative overlay pertains to the way we enter into the position. It ranges between 50% to 100% of total allocation. This will make the difference on where we will place the stop loss since we will always risk UP TO 50 basis points of the portfolio per position. All the signals are contrarian with regards to the immediate short term trend so the best trades are the ones entered at 100% on the signal that turn around and reach our take profit target relatively quickly. There are plenty of those when the volatility is high. November 2011 is a perfect example where we were down for 28 days in a one way market until we made it all back in the last 3 days of the month.

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?

FB

No we do not currently apply our algorithm to emerging markets. We have tried to do so when the volatility was relatively low in the majors however, we have not found anything worth keeping. The liquidity issues are quite important and real especially when you are trying to get out of a position.

FXTM

When developing a strategy, do you give a higher priority to building entry signals, exit signals or money management rules?

FB

The key is the money management. We can give you our entry system and you could lose money with it. Remember something very important in the FX market: “ All the positions you have ever taken in FX were good. You just need to find the right risk reward and position size that suits you and the trade” Easier said than done however the proof is in the risk management pudding.

FXTM

Do you think that every strategy loses its accuracy sooner or later, or do you believe in long lasting market rules?

FB

I believe in long lasting system with adjustments. In fact nobody can make money in the long run without a system. Even the most discretionary traders have a system. They may not be able to explain it or systemize it however they do have a system. Our system is applied to a multitude of currency pairs and on a multitude of different timeframes. Some work better than others at times however the important thing is that they work well together as a whole.

FXTM

Do you use any form of optimization?

FB

By definition every model ever made used optimization and curve fitting at the beginning. The key is to stick with the same system quickly and adapt the risk management rules as you go along if need be.

FXTM

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

FB

His horizon of trading should match his time frame. No point in using Yearly charts to trade intraday.

FXTM

How many execution brokers do you use? How do you split execution between electronic and voice?

FB

We only offer managed accounts and can deal with as much broker/dealers than we have clients however we chose one for the overall quality of its service and software which enable us to give-up to all our clients very efficiently. 99% of all trading we do is electronically.

FXTM

Which historical data do you use when developing your strategies?

FB

We chose the most accurate intraday tick data available. The most important thing is to always use the same data in order to stay consistent throughout your back testing in and out of sample.

FXTM

Which software do you use in the research, risk and reconciliation functions?

FB

For research we have developed our own in-house software that we use in conjunction with CQG system.

FXTM

Which opportunities and risks do you see in ultra-high frequency trading for FX managers?

FB

In order to make money in ultra high frequency trading in any asset class you need a technological edge as well as a great amount of capital and a rigid set of risk management rules. The risks are evident in the liquidity aspect of the game.

FXTM

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?

FB

We have chosen to trade the market we knew the most which happened to be the most liquid market in the world, the FX spot market. Every day new counterparties call us to give us more liquidity. We have set a soft close at 500M.

FXTM

What is the biggest strength of your team?

FB

Our biggest strength is the mix of well seasoned people working together and bringing a unique expertise ranging from trading, risk management and programming. On top of those key aspects each partners bring on a distinct yet complementary strength in management, business development and creativity which keep us flexible yet disciplined and laser focused to reaching our goals.

FXTM

Can you give us your feeling about the move of the EurUsd in the next 6/12 months?

FB

As I answer this question the Euro has already lost 10 big figures in November alone, from 1.42 to 1.32, and although I strongly hope it retraces back up on a normal retracement, I believe that there is more to come on the downside unless the European government comes up with an aggressive plan quickly.

FXTM

What’s the best advice you would give to traders who want to enter the FX fund management industry?

FB

Think twice. You will have 2 portfolios to manage, your investment portfolio and your client portfolio. If 100 potential clients promised you a seeding investment maybe 1 will step up to the plate however with a seeding 10 to 20 times smaller than what you thought.

Let’s say that you go with it. Good luck with making money for the next 3 to 5 years while surviving with little or no cash flow. If by magic you can achieve that, you will at best get the most common replies to your business development effort:  1- call me when you have 2, 3, 5 years of real track record and 2- call me when you have 50, 100, 300M AUM. Good luck with that. However if you stick with it and continue to build it, they will come.