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FX MANAGERS

Interview with Simon Harris

Portfolio Manager for Arktos Global

Director of the Arktos Global Currency Fund 

In this interview, Simon Harris tells us about his passion for trading and racing, and how he manages Arktos Global Currency Fund in London.

 

FX Manager

Portfolio Manager for Arktos Global

Director of the Arktos Global Currency Fund 

Strategy

Arktos Global Currency Program

Location

Savile Row, London

Assets Under Management

10mm USD

Type

Short term systematic

Style

Dynamic, directional

Instruments

Spot FX

 Traded Currencies

USD, EUR, JPY, GBP, CHF

 

fx managers trading racing passion Simon HarrisFXTM

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

SH

I have been an active currency trader since 1992 prior to Sterling’s departure from the ERM. My financial trading career began in 1983 when I moved from the London Stock Exchange to the futures floor of the L.I.F.F.E. where I focused predominantly on UK Gilt and FTSE 100 futures. In 1988 I co-founded an independent brokerage and proprietary trading firm on the floor of the L.I.F.F.E., which became one of the largest firms by volume traded.

He describes the concept behind the Arktos program and emphasizes the importance of experience when it comes to proprietary trading.

FXTM

What do you particularly like about your job?

SH

I still enjoy the constant mental challenge and strict discipline required to operate successfully amid the ever-changing characteristics of the financial markets and the interaction with the players involved.

FXTM

Do you have other passions outside trading?

SH

I enjoy sailing and tennis and I have been a keen skier and since a young age. I was introduced to motor racing in 1992 and was quickly hooked.

FXTM

Did you ever win a motor race?

SH

Became UK Caterham Champion in 1995 and then progressed to the Caterham Vauxhall Series (which is the car in the photo) at Donington where I won that race. My favorite story, which bores my friends, is when I beat Jenson Button at a charity go karting event when he was European champion; to be fair he started in sixth position and I was at the front – I finished first, he finished second.

FXTM

Did you ever participate to a trading competition?

SH

I did one once in Austria live on a stage for 2 hours. What struck me was how boring it was for the audience with the traders fully locked on to their screens. I have never taken part in an online competition and just trade my own accounts.

FXTM

Do you feel that racing and trading have something in common?

SH

Motor racing certainly feels a natural companion to trading for me. The intense concentration needed for the short races and later on the patience and concentration of endurance racing seemed a good fit with trading. Making sure, you know the track and also how the other drivers’ race is similar to watching the charts and the other players on the markets.

FXTM

Does racing help you be a better trader?

SH

I don’t know about making one a better trader, but it was a very good release from trading as one has to get away from the screens now and then and I get totally absorbed by the car, he track and performing at top level when on race tracks.

FXTM

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

SH

The most obvious difference with FX is the fact that it is open for business 24/6 and when free of Central Bank intervention, which is not always intuitive, it has probably the most efficient price transmission mechanism of any financial instrument.

FXTM

When and how was Arktos Global born?

SH

Nick Bloom and I, the two principals, met in 2006. The inception of the Arktos program was in November that year after Nick and I had spent several months formulating the basis of the core strategy.  It came about as a consequence of our belief that there was a need for a strategy capable of delivering performance with transparency and which properly matched investor liquidity with the liquidity of the underlying asset class.

FXTM

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

SH

Arktos currently has 4 team members based at our Savile Row Office in London, myself, Nick, James Mitchell and Luca Bono. Compliance and administration are outsourced to ensure independence and robust risk oversight.

FXTM

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

SH

In any company involved in trading the risk management aspect is most important, all the way from strict adherence to risk limits through to trade execution and back office reconciliation.

FXTM

Which authorities regulate the company?

SH

The FSA in the UK is the regulator y body.

FXTM

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

SH

Although the program is systematic in nature, the concept behind the Arktos program is heavily based on the two principals over 50 years of collective trading experience and knowledge. This is particularly important in terms of what drives markets and the suitability of specific strategies at various points in the price cycle.

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?

SH

The thesis behind the strategy is largely unchanged since inception. However, the adaptability of the core model has been the key to its durability.  Additionally a large amount of time has gone into the implementation of a number of risk filters designed specifically to limit volatility at both the portfolio and individual pair level.

FXTM

How do you manage risk in the company?

SH

It was decided from the outset to operate with a fixed risk budget rather than VaR since we felt more comfortable working with absolutes rather than with probabilities. Each currency pair and therefore potential trade has a maximum volatility weighted risk allocation and the portfolio has a daily risk budget.  Static entries reduce slippage risk on entry and gap risk is significantly reduced as a function of the strategy’s operational time window and the fact that we carry no positions over the weekend. When the system’s risk filters intervene, headline and/ or individual pair risk may be reduced.  Risk is never increased beyond the strategy’s pre-determined maximum.

FXTM

Do you use a blend of strategies or one only?

SH

Arktos has one principal strategy overlaid with a number of additional risk models, which were developed to allow the necessary adaptive flexibility to operate as currency market characteristics change. Using the same principles, we have further G10 pairs under live trade analysis, which will allow for positive diversification and add to scalability.

FXTM

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

SH

Our ideal market would involve a degree of directional bias but regardless of volatility conditions either generally or for a specific currency pair. Less favorable environments for the program are range bound markets with upper or lower boundary closes; under these conditions the program automatically seeks to reduce risk.

FXTM

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

SH

We decided not to trade the day after the ‘Flash Crash’ in May 2010, EURJPY having had a 10 big figure range day. Volatility spikes of that magnitude are not normal in rational, properly functioning markets.

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?

SH

Currently we don’t trade EM currencies though, of course, we follow them. We think that over time they have the potential to be additive.

FXTM

Do you think that every strategy loses its accuracy sooner or later, or do you believe in long lasting market rules? Have you ever found a strategy that became profitable again after a long negative phase?

SH

Our experience tells us that as market and currency characteristics change the accuracy of any strategy relies on its ability to be adaptive.

There will always be times when conditions are difficult and reducing risk in these periods is as important as running risk when the environment is favorable.

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?

SH

Back testing has its uses, but in an unregulated market such as Spot FX historical data can be misleading and will tell you very little about liquidity particularly in fast, gapping markets. As a consequence we have never used it, deciding instead to take the long view by building a live track record that shows how the program has evolved and reacted to changing conditions.

FXTM

Do you favor any particular time frame in your strategies? What is your average trade d u r a t i o n and trading frequency?

SH

The Arktos program is short term in nature with intentionally low trading frequency.

FXTM

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

SH

A strategy must fit the chosen time frame.  In our experience new traders tend to opt for very short-term timeframes, which, in most cases, lead to over trading and potential mental and capital exhaustion. Your chosen time frame will not always offer up successful trades and one must recognize this fact in advance before developing and implementing a strategy.

FXTM

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

SH

The fund has a historical average leverage of 1.3 to 1.4 times. Leverage has ranged from 0 to 4 depending on the volatility profile of the portfolio’s currency pairs.

FXTM

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

SH

We currently execute at two major institutions, Newedge UK and Deutsche Bank, with execution split between voice and electronic. Live Beta testing of other currencies and strategies is 100% electronic.

FXTM

Which opportunities and risks do you see in ultra-high frequency trading for FX managers? Hedge funds seek to use technology to improve latency and benefit from first move advantage over other market participants. The speed with which such programs operate and execute brings different strategies into conflict more and more frequently and has the potential to increase intraday volatility and thus affect liquidity.

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?

SH

Arktos was specifically designed to operate with the most liquid Spot FX pairs as defined by the Bank for International Settlements’ surveys. This was done to optimize the efficiency of transactions and limit slippage.

FXTM

What is the biggest strength of your team?

SH

Our ‘grey hairs’. We believe our team’s lengthy experience and acquired understanding over many years of proprietary trading has given us a discernible edge, especially in highly volatile, fractious markets when back tested models suffer from ever more frequent sharp inflection points and the subsequent over extended moves.

FXTM

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

SH

My own view is that we saw a significant high around the second ECB LTRO and Greek ‘agreement’, but that the recent range of 1.27 to 1.35 needs to be meaningfully broken for a fresh move to occur. The USD and the EUR both have issues.  The formers are twin deficits and political impasse; the latter’s sovereign debt problems, member state elections and status as a single currency without having fiscal union. This will lead to market positioning being the important factor in any ensuing moves.

FXTM

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

SH

 

Self-discipline and robust risk management combined with a willingness to learn and continue learning are of paramount importance. This is probably one of the world’s most competitive industries; the number and type of global players is changing and the market is undergoing radical regulatory changes. Be comfortable with your style of trading and make sure that it is consistent over time.