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FX MANAGERS

Interview with Emil Stavriotis

Director and FX Manager at Spectrum Asset Management, LLC

forex strategy trend following Emil Stavriotis

 

 

Emil Stavriotis tells FX Trader Magazine about the lessons he learned throughout his 45 years of trading experience in both commodity futures and foreign exchange. He also explains about Spectrum’s currency programs and strategies, the “Multi-Strategy” (Trend Following) and the “Mean Reverting” (Counter Trend) Strategy.

FX Manager

Spectrum Asset Management, LLC

Strategy

Mean Reversion & Multi-Strategy

Location

Chicago

Assets Under Management

$245M Spectrum GDP $18M Spectrum FX

Type

Systematic

Style

Mean Reverting and Trend Following

Instruments

Spot/Forward Only

 Traded Currencies

G5 Only

FXTM

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

ES

Although I have been trading commodity futures for nearly 45 years I have only been trading foreign exchange for four years. I began trading foreign exchange when I joined Spectrum nearly four years ago. Prior to joining Spectrum I was the founder and President of two CTA firms, Northstar and PAS Management, Inc. Both these firms traded diversified managed futures.  I also traded my own account and gave consulting advice to several firms in Agribusiness for many years. Prior to that, I was employed by several leading agribusiness firms.

FXTM

What do you particularly like about your job?

ES

The degree of autonomy that Mike Songer (President of Spectrum Asset Management) has given me. That autonomy has enabled me to continue evolving and improving the Mean Reversion strategy to what it is today.

FXTM

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

ES

In terms of money management, there is no difference in trading currencies from any other financial instruments. The biggest single difference between the two is the  24 hour nature inherent in trading currencies.

FXTM

When was the company born? 

ES

Spectrum Asset Management, LLC was formed in 2002.

FXTM

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

ES

The company has two offices. The main office is at the Chicago Board of Trade and has six employees located in that office. There is another office located in Georgia which houses two others, including myself.

FXTM

Which authorities regulate the company?

ES

We are regulated by the CFTC and NFA.

FXTM

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

ES

Spectrum has two types of currency programs. One of them is a Multi-Strategy trend following system and the second is a Mean Reverting system. I will concentrate on the Mean Reverting system since it is the vlarger strategy from the AUM point of view.

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? 

ES

To answer this question requires that I briefly discuss what lessons I have learned throughout my 45 years of trading experience in both commodity futures and foreign exchange. Through trial and error and the experiences that are gained as a result of trial and error, I came to the conclusion several years ago that a successful trader should be very conscious of which “window” he chooses to trade. What I mean by this is that every trader should decide what constitutes a short term and long term window for his style of trading as well as the assets he has under management. It has been my experience that in the course of a given year, there are relatively small opportunities for strong upside moves commensurate with limited losses for such moves. Way too often many trading managers see far too many of these opportunities and suffer the resulting losses in assets that come from being wrong.  Consensus is the name of the trading strategy that underlies both Spectrum currency programs. As developed, it requires that several market indicators agree with each other before a position is initiated and maintained. If those market indicators fail to agree with each other after a position is initiated, the position will be closed. This type of strategy helps to produce low drawdowns, particularly during periods of high volatility. Spectrum’s Multi-Strategy Program is also governed by the same principals as that of the Mean Reverting system. One of the drawbacks of this system is that the strategy may miss moves because of its conservative nature.

FXTM

How do you manage risk in the company? 

ES

We absolutely believe in the effectiveness of stop losses and our position sizing reflects a pre-set maximum risk as a percent of NAV.

FXTM

Do you use a blend of strategies or one only one? 

ES

Spectrum employs two strategies. The Multi-Strategy (Trend Following) Program which was established nearly seven years ago and the Mean Reverting (Counter Trend) Strategy begun in CY 2006. The Mean Reverting Strategy came about largely as a result of a request by one of Spectrum’s customers so as to give clients a choice between two strategies.

FXTM

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

ES

Less volatile markets rather than highly volatile markets.

FXTM

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

ES

Spectrum’s trading style does not necessarily believe in looking for home runs, but rather small and consistent returns while maintaining small drawdowns.

FXTM

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

ES

Risk Management has the highest priority.

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?

ES

To a certain extent all strategies will encounter losses that were not expected at the time they were first implemented. That is why continuous research is essential to the success and longevity of any trading system.

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?

ES

Some optimization is used. Caution is exercised so that over-optimization is avoided in creating signals. Rather, repeating levels are sought for entry and exit signals as opposed to optimal signals which do not repeat themselves as often.

FXTM

Do you favor any particular time frame in your strategies? What is your average trade duration and trading frequency? 

ES

Both currency strategies trade long and short term durations. The typical trading frequency can be from one day to two weeks with the average holding period lasting approximately three days.

FXTM

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

Our leverage is quite low compared to the industry. More often than not our leverage reflects approximately the utilization of 15% of available margin.

FXTM

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

ES

Presently we have two. All orders are voice execution.

FXTM

Which historical data do you use when developing your strategies? How important is that?

ES

Our FX strategies are based on exchange and CSI data.

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?

ES

Liquidity has not impacted the efficiency of our strategies to date. It is our belief that we could bring our AUM up to $200 millions without any additional changes.

FXTM

What is the biggest strength of your team? 

ES

The positive way in which we interact.

FXTM

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

ES

That they are very patient and make sure that the trading strategy they wish to employ is compatible with the interests of their client/clients.