A mentor for forming and marketing FX hedge funds

O

OddTrader

Currently I'm interested in exploring the possibility of forming and marketing a FX hedge fund. I would like to obtain advices from any potential mentors.

The system for the fund, trading 100% EUR/USD with daily market orders (to be entered during Asia timezone) using primarily a trends reversal approach, is a fully mechanical one, with leverage 4x; MaxDD <-10%; and target returns >+20% pa.

My current plan is to use Oanda's money management platform, called FXManager, therefore it can be fully automated in the future.

PMs are welcome.
 
Quote from OddTrader:

Currently I'm interested in exploring the possibility of forming and marketing a FX hedge fund. I would like to obtain advices from any potential mentors.

The system for the fund, trading 100% EUR/USD with daily market orders (to be entered during Asia timezone) using primarily a trends reversal approach, is a fully mechanical one, with leverage 4x; MaxDD <-10%; and target returns >+20% pa.

My current plan is to use Oanda's money management platform, called FXManager, therefore it can be fully automated in the future.

PMs are welcome.
More...
For starters, managed accounts are easier to market than hedge-funds, since your customers rest assured that you CAN"T run away with their money. Registering a hedge fund is a somewhat costly and lengthy process. So, I would suggest that you start with Managed Accounts.

You got it right, 4:1 leverage. Only fools use 100:1+ that most brokers provide.

Why limit yourself to Forex? Your specialty may be the Euro, but you should leave the door open to trade indexes by using a general broker (not only FX).

I recovered most losses for a fund' managed accounts that only traded the EUR-USD; by trading E-Mini S&P before Fed meetings. This was possible because their broker allows stocks, commodities, futures, options, etc.

Do you have track record, or at least backtesting; customers would ask for it.

Be aware that since last november the Euro has plateaued and may continue to do so; so your backtesting, that may have worked during the trending 2007, may not work now.

Now I'm using a quite simple Bollinger band rebound strategy at 1.5 std. dev. with 10:1 leverage, with good results, altough only with a small amount of my account.

Feel free to PM if you have more questions.
 
Quote from crgarcia:

For starters, managed accounts are easier to market than hedge-funds, since your customers rest assured that you CAN"T run away with their money. Registering a hedge fund is a somewhat costly and lengthy process. So, I would suggest that you start with Managed Accounts.

You got it right, 4:1 leverage. Only fools use 100:1+ that most brokers provide.

Why limit yourself to Forex? Your specialty may be the Euro, but you should leave the door open to trade indexes by using a general broker (not only FX).

I recovered most losses for a fund' managed accounts that only traded the EUR-USD; by trading E-Mini S&P before Fed meetings. This was possible because their broker allows stocks, commodities, futures, options, etc.

Do you have track record, or at least backtesting; customers would ask for it.

Be aware that since last november the Euro has plateaued and may continue to do so; so your backtesting, that may have worked during the trending 2007, may not work now.

Now I'm using a quite simple Bollinger band rebound strategy at 1.5 std. dev. with 10:1 leverage, with good results, altough only with a small amount of my account.

Feel free to PM if you have more questions.
More...

I agree 4:1, maybe 5:1, but that would be it.

Yes, managed account all the way! I've run across some pretty cool stuff recently (for Accredited's only), and when I tell them it's illiquid, they cringe.

crgarcia gave good advice here imo. Thumbs up!
 
Quote from crgarcia:

For starters, managed accounts are easier to market than hedge-funds, since your customers rest assured that you CAN"T run away with their money. Registering a hedge fund is a somewhat costly and lengthy process. So, I would suggest that you start with Managed Accounts.

You got it right, 4:1 leverage. Only fools use 100:1+ that most brokers provide.

Why limit yourself to Forex? Your specialty may be the Euro, but you should leave the door open to trade indexes by using a general broker (not only FX).

I recovered most losses for a fund' managed accounts that only traded the EUR-USD; by trading E-Mini S&P before Fed meetings. This was possible because their broker allows stocks, commodities, futures, options, etc.

Do you have track record, or at least backtesting; customers would ask for it.

Be aware that since last november the Euro has plateaued and may continue to do so; so your backtesting, that may have worked during the trending 2007, may not work now.

Now I'm using a quite simple Bollinger band rebound strategy at 1.5 std. dev. with 10:1 leverage, with good results, altough only with a small amount of my account.

Feel free to PM if you have more questions.
More...

Basically I also think the managed accounts (rather than a pool) of this hedge fund would be a preferred option. It would require very simple operations to set up and manage, provides a safety ownership of funds (as you mentioned), allows flexibility for clients to withdraw funds anytime (in case of poor performance), allows individual clients to choose their personal preferred platform (Oanda is mainly for small accounts), provides transparency with up-to-minute account status, facilitates a proven record/ history of performance (can be inspected by potential clients), etc.

Trading FX only because it has the best liquidity and scalability, that allows myself to trade my own accounts (beyond the fund and beyond FX) without any conflicts of interest. Clients cannot say anything about such as front running issues (when trading stocks or others).

Yes, I do have a track record for few years (trading with a different style) to back up this program, together with a simulated back-testing results for the last two years (i.e. 2006-2008).

A 4x leverage is also a good way for the manager to charge clients a certain management fees.

Any comments on the requirements of minimum account size (say $100,000 per client)?
 
Quote from musclemoney:

I agree 4:1, maybe 5:1, but that would be it.

Yes, managed account all the way! I've run across some pretty cool stuff recently (for Accredited's only), and when I tell them it's illiquid, they cringe.

crgarcia gave good advice here imo. Thumbs up!
More...

Are you once an adviser of accredited investors? Please tell us more about your experiences when dealing with them.
 
Quote from OddTrader:

Any comments on the requirements of minimum account size (say $100,000 per client)?
More...
It depends on lot sizes your broker provides.

If your broker only has the standard 100k lot, you would need 25k for 4:1 leverage.

By the way, if you trade a 100k lot, why not go for the CME E-Mini Euro FX future?

You'll get registered and controlled markets, fair quotes, no conflicts of interest (brokers bucketing), SIPC protection, etc.
 
Quote from OddTrader:

Are you once an adviser of accredited investors? Please tell us more about your experiences when dealing with them.
More...

I would go with 25m minimum to open the account. 100m is a little heavy for now. Once you hit home runs for several years, you'll be able to up your accout minimum to 50m or even 100m. But at that, you'll need clients with more assets, so you don't wind up trading 30% of their nest egg in Forex. (If they lost $$$, and filed a complaint, the regulators would barbeque you. Yes, they love a good barbeque...)

Yes, I used to only work with Accredited Client's. I modeled their Portfolio's for them, and some of the products I used/still use are for Accredited's only.

Example (growth investor):
30% of LNW going into SMA (Seperately Managed Account- Individual Equities. Typically, I use Aletheia, or Lockwood)
20% going into no-load Funds or ETF's (I may position a Hedge Fund here as well)
5-10% Private Oil and Gas drilling program
5% Private REIT
5% Equipment Leasing Progam (Private as well)
5% Commodities Funds (Not too much leverage!)
20% Fixed Income
5-10% cash
5% Forex

Basically, the private placements are the pieces that the SEC mandates for Accredited Clients only.

Read this too:
http://www.law.uc.edu/CCL/33ActRls/rule501.html

I wish you the best of luck in this! Keep me posted on how you're doing.:)
 
Quote from crgarcia:

It depends on lot sizes your broker provides.

If your broker only has the standard 100k lot, you would need 25k for 4:1 leverage.

By the way, if you trade a 100k lot, why not go for the CME E-Mini Euro FX future?

You'll get registered and controlled markets, fair quotes, no conflicts of interest (brokers bucketing), SIPC protection, etc.
More...

The required account size I mentioned $100,000 is invested capital, that could provide a trade amount up to $400,000 based on 4x leverage.

Oanda's flexible lot size would be suitable and good enough for my program. Many other traders/ CTAs and funds would use non-FX instruments (such as futures, CME, EFTs, etc.) to trade forex, not me.
 
Quote from musclemoney:

I would go with 25m minimum to open the account. 100m is a little heavy for now. Once you hit home runs for several years, you'll be able to up your accout minimum to 50m or even 100m. But at that, you'll need clients with more assets, so you don't wind up trading 30% of their nest egg in Forex. (If they lost $$$, and filed a complaint, the regulators would barbeque you. Yes, they love a good barbeque...)

Yes, I used to only work with Accredited Client's. I modeled their Portfolio's for them, and some of the products I used/still use are for Accredited's only.

Example (growth investor):
30% of LNW going into SMA (Seperately Managed Account- Individual Equities. Typically, I use Aletheia, or Lockwood)
20% going into no-load Funds or ETF's (I may position a Hedge Fund here as well)
5-10% Private Oil and Gas drilling program
5% Private REIT
5% Equipment Leasing Progam (Private as well)
5% Commodities Funds (Not too much leverage!)
20% Fixed Income
5-10% cash
5% Forex

Basically, the private placements are the pieces that the SEC mandates for Accredited Clients only.

Read this too:
http://www.law.uc.edu/CCL/33ActRls/rule501.html

I wish you the best of luck in this! Keep me posted on how you're doing.:)
More...

Thanks for the input.

In order to simplify the operations, my plan is the fund will be closed in the future for new clients. The total number of small clients will be also very limited. Potentially accredited or HNW clients would be the preferable ones, in order to minimise the overall interaction with all of them, small ones included.

I will only accept a client's nominated FX platform when it provides API/FIX set-up for automation.
 
Having worked with financial institutions that fund traders, I think that the managed account model is beneficial at certain times. Some hedge funds like to invest with particular traders; not with funds. They want to be able to monitor more closely what's going on. On the other hand, the fund of funds prefers the hedge fund model. I guess it depends on who your main investors are going to be. It also makes sense [for traders who are successful enough] to use both the managed account model and the hedge fund model to be able to accept a wider variety of clients.
 
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