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FX MANAGERS

Interview with Christopher Brandon

founding partner Rhicon Currency Management

In this interview Christopher Brandon  explains why it is fundamental to focus on the absolute risk and be aware of the worst case scenario at all times.

 

Manager

Christopher Brandon

Strategy

Rhicon Strategic Program

Location

Singapore and London

Assets Under Management

450 mln Usd

Type

Short to Medium Term Discretionary

Style

Technical Analysis

Instruments

Spot FX & options

Currencies

Majors & selective emerging marktes

 

fx managers trading risk management techniques Chris BrandonFXTM

How long have you been trading foreign exchange for? Tell us about your career evolution.

CB

I have been trading foreign exchange since late 1995 when I first joined Swiss Bank Corporation in Geneva, at the time a major player in the French Franc and Italian Lira markets.  Thereafter I moved to SBC London and onto UBS Singapore once the two banks had merged in 1999, market making, providing technical analysis and proprietary trading.  In 2000 I resigned to trade on a private basis with my two business partners, and established Rhicon Currency Management, taking on outside investors in late 2001.

FXTM

What do you particularly like about your job?

CB

The markets are continually evolving and thus one faces a constant challenge to remain ahead of the curve in terms of idea generation, interpretation of trends and other market participants.  One can never get complacent, and the need to maintain a trading edge is what makes it so interesting.

FXTM

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

CB

The 24 hour and the truly global nature of the foreign exchange market does make it unique, and it means as a trader you have to maintain your focus throughout the whole working week.  You are required to be agnostic to market direction, equally comfortable trading from the short & long sides unlike in equity markets for example. 

FXTM

When was Rhicon born? What ideas brought to its creation? 

CB

Rhicon was established in 2000 in Singapore, and we launched our first fund in December 2001.  It was a natural progression from the private trading that the three partners had been doing, which taught us the invaluable lessons of discipline and risk management, the keys to successful money management.

FXTM

How is today the company structured?

CB

Rhicon currently has 14 employees, equally split across our two main offices in London and Singapore and a partner trading from Geneva.  Due to the nature of the markets we trade we felt it was important to have better internal coverage of the markets on a global basis, both in terms of monitoring & execution as well as back office & operations.  This shaped the decision to have offices in Europe as well as in Singapore.

FXTM

What are the key positions in your company?

CB

Beyond the three portfolio managers, the most important position is held by our Head of Risk Management & Compliance who is based in London, and has been with the firm for nearly seven years.

FXTM

Which authority regulates Rhicon? Do you keep and update procedure manuals? Do you have a compliance and risk management policy? How time consuming and important is this?

CB

Rhicon is regulated by the FSA in the United Kingdom, as well as by the Monetary Authority of Singapore and the National Futures Association (US) in Singapore.  Rhicon has dedicated personnel in both locations who maintain our internal compliance & risk management policies & procedures.  In addition, we have employed outside regulatory consultants to keep us abreast of external developments as well as provide a ‘health check’ on our own procedures.  Whilst this may be time consuming, we feel it is a very important part of our business, and we have been keen to devote resources to ensure that we are fully compliant at all times.  This not only minimizes the risk of errors but reassures our investors as well as ourselves.

FXTM

As currency program manager, how would you describe your investment strategy?

CB

Our investment strategy is best defined as being short to medium term discretionary trading, with a strong emphasis on technical analysis.  We have been quite fortunate that the three portfolio managers have naturally evolved into three different time frames with complementary styles.  These include intra-day trading with a more contrarian bias, short term trading with a bias towards breakout/momentum, and a more medium term perspective which comprises both technical analysis and thematic studies.  This should enable us to generate profits in a broad range of market environments.

FXTM

How and when did you develop your current FX management strategy?

CB

The partners at Rhicon have been trading their own capital for over 10 years, and we continue to be heavily invested in the strategy.  This has shaped our approach to trading and most importantly to risk management which is the cornerstone of our strategy.

FXTM

Risk, an exciting yet dangerous word. How do you manage it?

CB

Anyone who thinks risk is an exciting word should not be trading foreign exchange.  In our view, the key to successful trading relies on faultless discipline and focus on the absolute risk deployed at all times on the overall portfolio, on the three managers’ trading books, and on each and every underlying position.  As such we have a maximum monthly loss on the strategy of 4%, split across the three books (1% for the intra-day book, 1.5% for the other two), and also a maximum amount of risk that can be deployed on any single trade within each book.  This emphasis on the absolute risk means that we are aware of what our worst case scenario might be at all times.

FXTM

What’s the most important lesson you’ve learned from trading?

CB

The old adage of plan your trade and trade your plan is one that we have learned from experience many years ago.  Without a strict plan, comprising of entry points, stop loss levels and targets, a trade should not be implemented.  This holds true regardless of investment style or time frame and one which we all adhere to.

FXTM

Do you use a blend of strategy types for diversification or one and only?

CB

Whilst we all rely on technical analysis as the basis for our trading, we benefit from a natural diversification across time frames and trading styles.  Within a robust risk management framework this means that we should be able to take advantage of a wide set of market opportunities and environments.

FXTM

How do you think has your performance been over time? What market conditions are expected to have a positive and negative impact on it?

CB

We are constantly striving to perform better, limit our draw-downs and take advantage of fresh opportunities; hence the benefit of 20-20 hindsight is not particularly useful in assessing prior performance.  We typically tend to benefit from a change of volatility, often when this marks a market correction or reversal.  Low volatility environments such as witnessed in 2006 or choppy intra-day markets such as the ones we have been experiencing this year can prove challenging to us.

FXTM

Can you give some recent examples of where you have made a unique winning decision?

CB

A recent winning trade took advantage of the short term correction higher in the USD against the CAD in late October.  We had been aware of the market building long CAD positions as we broke through the September lows of 1.0590, and with commodities surging to new highs.  As equities and risk assets paused in mid October, the market made a perfect re-test of this breakdown level, forming a pivot point.  This is a point of inflection where the market swings from bullish/bearish.  This provided us with an entry point (ie. Long USDCAD) to take advantage of the correction in risk assets, as USDCAD traded through that level and on towards the 1.0870 region.  We reached our take profit target within a week, before the move eventually petered out. 

FXTM

Do you use less mature currencies? Or do you consider the relative lack of liquidity and wider spreads to be an obstacle to efficiency?

CB

We trade some liquid spot emerging markets such as PLN, HUF, CZK and to a lesser extent the ZAR, MXN and SGD.  The higher volatility in these markets generally compensates for the lower liquidity, however this is not always the case and careful monitoring is required to ensure the risk reward is present before implementing a trade.

FXTM

Would you recommend private traders to trade some of the less mature currency pairs?

CB

The same issues of ensuring that your risk reward is skewed in your favour as well as knowing where your stop loss is are just as relevant for individual traders as hedge funds.

FXTM

When developing strategies how much time do you spend on building entry and exit signals, and creating money management rules?

CB

One can spend a lot of time developing money management rules, but the real key is to follow them at all times, and never deviate from them. 

FXTM

How much time do you allocate to further research and development of existing or new trading strategies?

CB

We are constantly reviewing our own discretionary trading (on a weekly basis) to ensure we are adapting to the current market environment whilst at the same time respecting our own style and guidelines.

FXTM   

Do you believe in ever-valid rules? Have you ever found strategies that come back into phase after a long time in negative?

CB

Money management rules are ever-valid.  Strategies may however need to be tweaked according to market environments to adjust to new participants, interest rate backdrops etc.  Indeed some strategies such as carry based ones tend to be cyclical.

FXTM

Do you agree that one way to react to the ever-changing market is to adjust parameters? Do you already use changing parameters based on volatility measures or filters?

CB

A successful trading strategy should naturally adjust to volatility, and in this respect our use of technical analysis allows us to do this seamlessly, as higher volatility is captured in larger hourly and daily ranges.  Whilst your trading parameters thus adjust to these, your risk reward should however remain constant to ensure consistency in risk taking.

FXTM

What should an inexperienced trader watch when choosing the time frame to trade on?

CB

He or she should focus on the time frame they feel most comfortable in.  This should be a reflection of their personality, so for example a trader who struggles to sleep with positions overnight should probably focus their efforts on intra-day trading. 

FXTM

What are your average and maximum leverage used?

CB

Our average leverage used is about 0.5 times AUM, with the maximum having been 3 times.

FXTM

How many execution brokers do you use? How do you split execution between electronic and “dear old voice”?

CB

We use over a dozen execution brokers which includes all the major banks, and split our execution between electronic platforms and market orders approximately 1/3 versus 2/3 respectively.

FXTM

What historical data do you use in developing your strategies? How important that is?

CB

As we rely on technical analysis the accuracy of data is very important and thus we have invested in one of the premier charting packages for this reason.

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?

CB

As our overall leverage is low, the effects of liquidity on our strategy have not been relevant to date, however we would look to soft close the strategy as we approached 800mio USD to ensure that our performance was not being affected by asset growth.

FXTM

What is the single biggest strength of your team?

CB

Rhicon’s greatest strength lies in the fact that we are a team, and have been trading together for some 10 years.  This means that we understand each other’s strengths and potential weaknesses and have been able to help each other to develop as better traders.

FXTM

Can you give us your feeling about the most popular, EurUsd, over the next 6/12 months.

CB

It appears at the time of writing that whilst Asian central bank diversification persists, the EURUSD should continue in its uptrend.  This may lead to further jaw-boning by European officials however, and could even potentially lead to intervention if the pace of the appreciation accelerated.

FXTM

What’s the best advise to give to an individual trader and to a semi professional trader who wants to enter the FX fund management industry?

CB

The all consuming nature of this business and discipline required are two of the reasons many traders fail to succeed.  I don’t personally believe trading is something that can be undertaken on a part-time basis and as such a total commitment needs to be made in terms of time and resources.