Alder Capital managed forex alder.altavra.com

Alder Capital’s trading system is founded on the following premises:

1. Trends in the value of some currency pairs or combinations of currency pairs tend to persist for periods of three weeks and upwards.

2. Movements in the value of some other currency pairs or combinations of currency pairs tend to self correct.

3. Currencies with higher interest rates tend to attract capital relative to currencies with lower interest rates.

4. All customers have a limited tolerance for risk.

Each of these premises is discussed in turn below.
 

1. Based on research, Alder Capital has come to the conclusion that the movement of spot rates of a number of currency pairs or combinations of currency pairs can be partially explained by trending characteristics and interest rate differentials. The trending characteristic is more pronounced for periods of three weeks and upwards.

Why, in Alder Capital’s opinion, does this happen?

The participants in the currency markets don’t all have the same objective; for some, currency risk management is the objective and they are willing to forego potential returns in order to make the outcome more certain. This is equivalent to purchasing insurance. Participants in the currency markets who are prepared to forego return in order to achieve other objectives include:

Central Banks
Central banks sometimes seek to smooth excessive exchange rate fluctuations or send ‘signals’ to the market regarding their preferred level of an exchange rate and so they have an appetite to buy or sell currencies which is not based on potential profit.

Corporate Bodies
Corporate bodies involved in cross-border mergers & acquisitions may wish to lock in a certain rate of exchange rather than risk a movement in the currency markets as stability of earnings is critical to raising new capital.

International Investors
Pension fund managers and other investment managers make investments in foreign currency denominated assets. Some of these managers have a policy of not hedging the foreign currency exposure of their investment portfolio while others pursue a policy of partially or fully hedging their foreign currency exposure. Both of these policies give rise to off-exchange foreign currency transactions that require immediate execution without any significant value sensitivity.

Alder Capital believes that this inefficient reaction to new information creates gradual price adjustments and long-term trends. Alder Capital seeks to take advantage of these trends.

2. Based on research, Alder Capital has found that some currency pairs or combinations of currency pairs exhibit self-correcting movements. Alder Capital’s research shows that this is particularly so among currency pairs from the same continent or currency pairs loosely linked to a common set of resources.

3. For the major liquid currency pairs, Alder Capital’s research has shown that currencies with higher interest rates tend to attract capital relative to those currencies with lower interest rates. Therefore, the difference in interest rates between two currencies plays an important role in the directional forecast of a currency pair.

4. As all customers have a limited tolerance for risk, Alder Capital requests each customer to select a maximum forecast risk level with which they are comfortable. The risk of a portfolio of liquid currencies is driven by the risk of its constituent currency pairs, the extent of correlation between those currency pairs and the extent of gearing. Any level of ‘Forecast Risk’ of a portfolio of currency trades can be targeted by reducing the level of gearing when the forecast market risk of the portfolio rises and by increasing the level of gearing used when the market risk of the portfolio falls. By forecasting market risk and adjusting the exposure of a portfolio in the light of such forecasts, Alder Capital believes it can manage the risk of its customers’ trades.

Risk Management
In order to take advantage of trends, self-correcting movements and interest rate differentials, currency risk must be taken. Alder Capital believes that clients should decide the maximum level of ‘Forecast Risk’ for their account because different clients have different risk appetites. Alder Capital offers two currency programs: Alder Global 10 and Alder Global 20; each program has its own level of maximum ‘Forecast Risk’. Table 2 below describes the risk constraints for the Alder Global 10 and Alder Global 20 programs.

Since currency risk is constantly changing, Alder Capital believes that it is imperative to make every effort to measure these changes and to limit a client's maximum portfolio ‘Forecast Risk’ at each time of trading to an agreed level in light of whatever market risk can be forecasted. Alder Capital uses a risk management system called 'CALM' to forecast currency risk.

Alder Capital cannot control the level of market risk of a currency pair. However control of the ‘Forecast Risk’ in the portfolio can be achieved using ‘Gearing’. Put simply, ‘Gearing’ is reduced when the ‘Forecast Risk’ of the trades in the portfolio is high and ‘Gearing’ is increased when the ‘Forecast Risk’ is low. In this way, Alder Capital can vary the ‘Gearing’ of the portfolio so as to maximize the long-term Sharpe ratio of the portfolio without exceeding the ‘Forecast Risk’ and ‘Gearing’ constraints set out below.

The purpose of applying a ‘VAR’ (Value-at-Risk) limit each trading day is to reduce the magnitude and the frequency of ‘surprises’ for investors. A surprise is defined as an improbable large movement - either positive or negative - in the value of the portfolio taking into account the maximum forecast risk of portfolio returns and under the assumption that returns are normally distributed.

‘Forecast Risk’ and ‘VAR’
‘Forecast Risk’ is defined as the standard deviation of return forecast by Alder Capital. ‘Forecast Risk’ will be measured using Alder Capital’s proprietary risk measurement system called ‘CALM’. ‘CALM’ measures the ‘Forecast Risk’ for each currency pair and for the portfolio of currency pairs for the next 24 hours.

‘VAR’ (Value-at-Risk) is defined as a two-standard deviation move (twice the daily ‘Forecast Risk’ level) between the same times on two consecutive trading days.

‘Forecast Risk’ & Actual Risk
The level of risk that the portfolio experiences once trades are executed will be different to the ‘Forecast Risk’ of returns as calculated prior to execution of the trades. Forecast Risk is the expected value of future risk whereas actual risk will vary around this average.

Limit on ‘VAR’ & Stop Loss Limit
Limiting the daily ‘VAR’ to 1.875% and 3.75% for the Alder Global 10 and Alder Global 20 programs respectively is not the same as a ‘stop loss’ limit. Actual risk experienced may exceed the daily ‘VAR’ limits which apply at the time of trading. On average, at least once in every forty trading days, somewhere between six and seven times a calendar year, the actual risk is likely to exceed the daily VAR limit on the downside.

Gearing

Gearing is defined as follows:

(i) For each trade in a portfolio, (a) identify the base currency and the reference currency and (b) list the nominal amounts of the base currencies and reference currencies. Nominal amounts are determined using the price at which the trade was originally executed. For short positions in a portfolio, the nominal amount of the base currency is deemed to be negative and the nominal amount of the reference currency will be deemed to be positive. For long positions in a portfolio, the nominal amount of the base currency is deemed to be positive and the nominal amount of the reference currency is deemed to be negative.

(ii) Convert all base and reference currency amounts in (i) (b) above to the account currency (US dollars for example) using the spot exchange rates (€/$ and $/¥ for example) prevailing at the time of calculating the gearing of the portfolio.

(ii) Using the sign convention established in (i) above and the common currency figures in (ii), calculate the net position in each currency other than the account currency.

(v) Sum the positive net positions and call this A. Sum the negative net positions and call this B. Take the Net Exposure as the greater of A and B ignoring the signs of such sums.

The gearing of the portfolio of trades is defined as the Net Exposure divided by the Nominal Account Size.

Markets Traded
Alder Capital trades over-the-counter spot and forward contracts in the following currencies: Euro (EUR), US Dollar (USD), Japanese Yen (JPY), British Pound (GBP), Swiss Franc (CHF), Swedish Krona (SEK), Australian Dollar (AUD) and Canadian Dollar (CAD).

Trade Selection
At least once in each trading day Alder Capital calculates the expected trend, the interest rate differential and the ‘Forecast Risk’, as applicable, for each currency pair or combination of currency pairs. The expected trend for a currency pair or portfolio of currencies is calculated using historical prices; the interest rate differentials are sourced from the market; and the ‘Forecast Risk’ is calculated using Alder Capital’s risk forecasting system, CALM. These parameters are the inputs to Alder Capital’s proprietary trading process which determines the ‘quality of the opportunity set’, the currency trades and their size with the objective of maximizing the long-term Sharpe ratio of the portfolio subject to certain constraints including those that apply at the time of trading.

Trade Execution - Systematic Only
There is no discretionary trading – Alder Capital's trading system is 100% systematic. Once the proprietary trading process identifies the trades for each account, Alder Capital’s trading staff will execute those trades within a short timeframe designed to take maximum advantage of the available liquidity.

Treatment of Offsetting Positions
If Alder Capital’s trading system decides to offset an existing position for the account of a client in a particular currency pair, the system will take the opposite position for the client’s account in the same currency pair and for the same settlement date. Where the system wishes to offset a combination of positions open for a client’s account it may take a position in a different currency pair to that in the portfolio for the same settlement date to achieve the offsetting effect.

Quality of Opportunity Set Adjustment
Alder Capital has developed a means of distinguishing, with some rather than perfect accuracy, between the ‘quality of the opportunity set’ at different trading times.

Portfolio Implementation of Quality of Opportunity Set

If one can distinguish with some (albeit not perfect) accuracy between different opportunities, then one can reduce the risk of a portfolio when the opportunity set is forecast to be poor and bring up the forecast risk of the portfolio when the opportunity set is forecast to be favorable.

Benefits for Alder Capital’s Customers
Alder Capital believes that its ‘quality of opportunity set’ adjustment leads to two benefits for clients:

1. Returns are likely to be better as what are forecast to be poorer opportunity sets are avoided and more advantage is taken of what are forecast to be better opportunity sets;

2. The overall risk of the portfolio will on average be lower.

Alder Capital believes that this will lead to a better long-term Sharpe ratio for its clients’ accounts.

Implementation Date
Alder Capital implemented the ‘quality of the opportunity set’ feature on 30 March 2005.
 

Alder Capital has a policy of ongoing research and development and as a result the trading systems used by Alder Capital may be upgraded. At Alder Capital, our search for improved trading strategies and systems is ongoing and the upgraded strategies and systems used may differ from those presently used.

If Alder Capital intends to change the ‘Investment Philosophy’ clients will be advised in advance of the change. However clients will not be informed of changes in the methods used. For the avoidance of doubt Alder Capital's trading methods are defined by the trades that Alder Capital’s system recommends each day, the frequency of trading and the times at which those trades are executed.

CALM is Alder Capital’s proprietary risk forecasting system. CALM stands for Conditional Autoregressive Long Memory.

Alder Capital believes that currency risk has the following features:

1. Currency markets tend to be clustered into periods of high volatility and periods of low volatility – this is the conditional feature. Future currency volatility is conditional on the recent past.

2. Currency volatility tends to settle back to a long run average. This is the autoregressive feature.

Customarily, risk is modeled by assuming that the link between volatility on two different days decays in line with the number of days between them. Often this decay is modeled using an exponential decay process.

Alder Capital believes that exponential decay models cannot capture the essential features of currency market volatility.

Why?

It either fails to react quickly enough to market moves, i.e. it does not satisfy the conditional feature; - or - It fails to settle back to the long run average, i.e. it fails to capture the autoregressive feature.

Alder Capital believes that a different measure is needed.

Alder Capital has chosen to use a long memory process to model this decay. This is because Alder Capital believes a long-memory process can more accurately capture these essential features of currency risk it has identified and therefore generate better forecasts of currency risk.

Mark Caslin is the managing director of Alder Capital and has over fifteen years experience in the development and operation of systematic currency direction and risk models. In July 1991, Mark Caslin was appointed as General Manager and Head of Research at Beacon Systems Limited (“Beacon”). Beacon was a sister company of Gaiacorp Ireland Limited (“Gaiacorp”). Beacon provided the 100% systematic trading process used by Gaiacorp in its fund management business. On 1 January 1995, a completely new currency trading model for the Gaiacorp-Beacon group went live; this model had been researched and developed exclusively by Mark Caslin. Mark continued to be responsible for the research and development of this trading system until he left Beacon at the end of April 1999. In May 2000, Mark Caslin set up Alder Capital with Brian McCarthy. Mark Caslin was registered as an Associated Person of and was approved as a Principal of Alder Capital by the National Futures Association on 18 May 2001 (05/18/2001). Mark has written a number of articles on various aspects of currency risk all of which are available on Alder Capital’s website. He is both an Entrance Exhibitioner and a Scholar of Trinity College Dublin from which he holds a B.A. Mod. in Mathematical Sciences.

Brian McCarthy is an executive director of Alder Capital having founded the company with Mark Caslin in May 2000. Brian McCarthy was registered as an Associated Person of and was approved as a Principal of Alder Capital by the National Futures Association on 18 May 2001 (05/18/2001). Prior to setting up Alder Capital, Brian McCarthy worked for Gaiacorp Ireland Limited (now known as ACMP Limited) as the trading room manager having joined the company in September 1994. From January 1995 to August 1999, Brian’s role was to execute the trades output by the model developed by Mark Caslin at Beacon Systems Limited. Brian acted as a client relationship manager for Gaiacorp from September 1999 until he left the company in December 1999. Brian McCarthy was registered by the National Futures Association as an Associated Person of Gaiacorp Ireland Limited from 26 September 1997 (09/26/1997) to 14 January 2000 (01/14/2000). From December 1999 to April 2000, Brian worked with Mark Caslin on the setting up of Alder Capital. In 1991, Brian graduated from University College Dublin with a Masters Degree in Economic Science.

John Caslin is an executive director of Alder Capital having joined the firm in September 2003 from Eagle Star Life Assurance Company of Ireland (ultimate parent Zurich Financial Services) where he held the position of General Manager Investment & Financial Solutions, was a member of the senior management team and a member of the Investment Committee of the board of Eagle Star Life Assurance Company of Ireland which, at that time, oversaw the management of a portfolio of assets of approximately US$3.0 billion. John joined Eagle Star Life Assurance Company of Ireland in January 1991. John Caslin was registered as an Associated Person of Alder Capital on 28 March 2005 (03/28/2005) by the National Futures Association. He was approved as a Principal of Alder Capital by the National Futures Association on 2nd May 2005 (05/02/2005). He is a Fellow of the Institute of Actuaries and a Fellow of the Society of Actuaries in Ireland. John is a former Chairman of the Education Committee and of the Investment & Finance Committee of the Society of Actuaries in Ireland. John’s name has been entered in the Prizes’ Book of the Institute of Actuaries for two papers one of which was entitled Hedge Funds. He has written several articles on both traditional and alternative investments and his work has been published in the Alternative Investment Management Association Newsletter/Journal and the British Actuarial Journal. From March 2004 to June 2008, John served as a non-executive director of iShares plc a Dublin-domiciled exchange traded fund which, at 29 February 2008, had approximately US$20bn in assets under management. iShares plc is listed on several stock exchanges throughout Europe and is authorized and regulated by the Central Bank. In 1981, Trinity College Dublin awarded John a degree in mathematics and a first class honors degree and gold medal in engineering.

Dick Spring is a non-executive director of Alder Capital. Dick was a member of Dail Eireann (Irish Parliament) from 1981 to 2002, during which time he served as Leader of the Labour Party, Deputy Prime Minister and Minister for Foreign Affairs. Dick is a graduate of Trinity College, Dublin and King’s Inns. He is vice-chairman of FEXCO and chairman and director of a number of companies including one of Ireland’s major banks, Allied Irish Banks plc. Mr. Spring does not take part in any trading or operational activities of Alder Capital nor does he actively market Alder Capital’s services. Dick Spring was approved as a Principal of Alder Capital by the National Futures Association on 18 May 2001 (05/18/2001).

Ceall O’Dunlaing, F.I.A. F.S.A.I., is a director of Financial Risk Solutions Limited which is one of the leading providers of investment administration software to the life and pensions industry in Europe. The software is built by actuaries and IT professionals who understand the life and pensions industry. Mr. O’Dunlaing worked as an actuarial assistant in Irish Progressive Life Assurance Company from 1989 to 1995. He was involved with actuarial product development with Irish Progressive from 1995 until 1998 and worked as the valuation actuary with Irish Progressive from 1998 until 1999. He became the Pricing Actuary for Irish Life Assurance plc in February 1999 and he left this position in November 1999 to become a founding director of Financial Risk Solutions Limited. Mr. O’Dunlaing is a Fellow of the Institute of Actuaries, London and a Fellow of the Society of Actuaries in Ireland. Mr. O’Dunlaing does not take part in any trading or operational activities of Alder Capital nor does he actively market Alder Capital’s services. Ceall O’Dunlaing was approved as a Principal of Alder Capital by the National Futures Association on 25 June 2008 (06/25/2008).

THE RISK OF LOSS IN FOREX TRADING CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD ALSO BE AWARE OF THE FOLLOWING:

FOREX TRANSACTIONS ARE NOT TRADED ON AN EXCHANGE, AND THOSE FUNDS DEPOSITED WITH THE COUNTERPARTY FOR FOREX TRANSACTIONS MAY NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTIONS CONTRACTS. IF THE COUNTERPARTY BECOMES INSOLVENT AND YOU HAVE A CLAIM FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE COUNTERPARTY, YOUR CLAIM MAY NOT RECEIVE A PRIORITY. WITHOUT A PRIORITY, YOU ARE A GENERAL CREDITOR AND YOUR CLAIM WILL BE PAID, ALONG WITH THE CLAIMS OF OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS ARE PAID. EVEN CUSTOMER FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN OPERATING FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF OTHER GENERAL AND PRIORITY CREDITORS.

THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE FOREX CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.

MANAGED ACCOUNTS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES AND THE ACCOUNT MAY NEED TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETING OR EXHAUSTING ITS ASSETS.  THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE ACCOUNT MANAGER.

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND SIGNIFICANT ASPECTS OF THE FOREX MARKETS.  THEREFORE, YOU SHOULD CAREFULLY REVIEW THIS DISCLOSURE DOCUMENT BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT. 

You are encouraged to access the disclosure document AND/OR MANAGEMENT AGREEMENT by clicking the links provided AT Forms.altavra.com. You will not incur any additional charges by accessing the documents. You may also request delivery of a hard copy at formsbymail.altavra.com, which will also be provided to you at no additional cost.  the CFTC has not passed upon the merits of participating in any of these trading programs nor on the adequacy or accuracy of any of these disclosure documents OR MANAGEMENT AGREEMENTS..

YOU SHOULD ALSO BE AWARE THAT THIS TRADING ADVISOR MAY ENGAGE IN TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, THESE MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE YOU TRADE YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR PARTICULAR CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR LOCAL AND OTHER RELEVANT JURISDICTIONS.  THE TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING FUNDS IN THE TRADING ADVISOR’S NAME FROM A CLIENT FOR TRADING. YOU MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM DIRECTLY WITH A FUTURES COMMISSION MERCHANT.

THE FOLLOWING PERFORMANCE NUMBERS HAVE BEEN SUPPLIED BY THE MANAGERS DIRECTLY TO VARIOUS DATA COLLECTION SERVICES.  THE INFORMATION PRESENTED HAS BEEN OBTAINED FROM DATA COLLECTION SOURCES THAT ALTAVRA BELIEVES TO BE RELIABLE.  ALTAVRA IN NO WAY GUARANTEES THE ACCURACY OF THESE NUMBERS AND HAS SUPPLIED THEM FOR INFORMATIONAL PURPOSES ONLY.  ALTAVRA HAS NOT AND CANNOT VERIFY THE ACCURACY OF SUCH INFORMATION AND POTENTIAL INVESTORS SHOULD BE AWARE THAT SUCH INFORMATION IS SUBJECT TO CHANGE WITHOUT NOTICE.  THIS DOES NOT CONSTITUTE A SOLICITATION TO BUY OR AN OFFER TO SELL.  Other disclosure statements are required to be provided before an account may be opened for you.

questions or COMMENTS:  please email clientservices@altavra.com or call 1-800-998-7870.

Peregrine Financial Group, Inc may act as counterparty to your forex transactions.  Past performance is not necessarily indicative of future results.   There are substantial risks associated with leveraged products and additional risks with off-exchange transactions such as those in this managed forex account program. 

The descriptions above are from the manager's disclosure document.

THE RISK OF LOSS IN TRADING FUTURES, OPTIONS AND OFF-EXCHANGE FOREX CAN BE SUBSTANTIAL.  PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.  PLEASE READ THE CTA'S RISK DISCLOSURE DOCUMENT CAREFULLY BEFORE INVESTING MONEY.