| July 02, 2007 | -- Making sense of the FX connectivity conundrum
Interview with e-Forex, by Chris Hall
(The following is extracted from the above article.)
Capricorn Advisory Management is a Swiss-based specialist FX hedge fund and commodity trading adviser that conducts the vast majority of its USD300-500m average daily trading volume electronically, via single and multi-bank platforms. Capricorn uses an in-house developed algorithm to rate the execution performance of the different platforms based on factors such as price, latency, liquidity and platform stability.
“If one system goes down, we need to be able to access to another one. The rating system helps us to decide which platform to use in different situations,” says Mikkel Thorup, Chief Investment Officer and founding partner. Capricorn still conducts some trading by phone – for example, when trading on stop or limit orders – but the future is increasingly automated and, importantly, customised to traders’ precise needs.
The firm is developing functionality that enables traders to pick out the best bids and offers from the prices offered by its single bank platforms. “Effectively, this will be our own in-house multi-bank platform,” says Thorup. “There are so many providers of liquidity out there, but we can only use so many single bank platforms. We believe in best execution and are willing to make the investment to achieve it.”
Large trading volumes mean that back office connectivity is also an important concern for hedge funds such as Capricorn. “Prime brokers need to have superior systems and high levels of automation, both for our ease of use but also to eliminate errors. If you have errors, particularly on give-ups, it is always very hard to correct them,” says Thorup.
Prime brokerage FX traffic has grown rapidly in recent years as clients’ trade ever greater volumes through electronic platforms. But because most trades are closed out prior to settlement, prime brokers have not developed fully automated, standardised back-office processes.
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Capricorn is an established currency manager with a global client base that includes; Banks, Asset Allocators, Institutions, Investment Funds and High Net Worth Individuals. As of today, the company has more than 50 years of experience within the investment advisory arena, and manages over US$60 million in client assets. For the last eight years Capricorn has produced superior risk adjusted returns in its investment programs, trading high liquid currencies as managed accounts and offshore funds for Individual and Institutional clients. The vision behind Capricorn is to reach our capacity of US$ 250 million, managing the assets of professional investors. To achieve this goal our aim is to provide premium investment programs that seeks, strong returns with low volatility and a low correlation to other investment vehicles. In order to strengthen our ability to add value to our clients’ portfolio, we choose to develop and maintain relationships with reputable financial institutions that are leaders in their field.
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