System Trading Blog

Make Your Money Work Harder

Posts Tagged ‘forex signals

Currensee: premium fee for basic service

leave a comment »

Image Currensee allows investors to mirror trade real trading accounts of traders. As a part of service, they do due diligence on traders before they approve them as eligible for investor accounts (and brand such traders as trade leaders). This is a big difference from other services like Collective2 and Zulutrade which are open to all traders. But then, the choise of which traders to select is up to the investor himself. Regulatory and corporate liability considerations should play a role here. They charge a hedge fund like fee of 2/20 fee (2% management fee and 20% incentive fee). Given the fact that investor selects the traders himself, this is a high fee for the service (additionally, Currensee receives rebates from broker).

Currensee pays the traders 15% of the profits they make for investors, but no share of management fee or broker rebates. This is a near-optimal arrangement as the investor interests are aligned with those of traders and there is no incentive for churning. And this is a one of the best deals out there for traders.

Currensee, now owned by retail forex company Oanda, is one of the safest ways to start copy trading, but it is heavy in terms of fees and for anybody with basic skills in trading algorithm evaluation it is more beneficial to look elsewhere. The reported average return of 11.94% p.a. (as on Sep 30, 2013), not adjusted for fees, is less than impressive for this type of investing.

Advertisements

Written by A.S.

October 29, 2013 at 10:29 pm

Collective2 highlights system trading risks, introduces System Advisor

leave a comment »

Matthew Klein, the owner of Collective2 website, has put out two pieces of work to highlight the risks of system trading (although both read as promotion material for C2 website). The titles of both pieces are framed negatively (as usually) and include an e-book and an e-mail of an e-book length.

The e-book How to Lose All Your Money Trading has 30 pages and the message comes down to one sentence: Don´t trust back-tested systems, or any systems, except the ones verified in real-time on Collective2.

The lengthy e-mail titled Why you should date an ugly girlfriend basically says that all trading systems involve risk, but one should particularly avoid smooth-performance-curve systems. Not-so-smooth (i.e. ugly) systems are supposed to be more reliable.

Then Collective2 introduces C2 Trading System Advisor. This service may be helpful to choose a trading system(s) for trading in a live account, although it is very rudimentary at the moment.

My take on this is that performance of any trading system can tank at any time, irrespectively if it´s verified in real-time (by service like Collective2) or not.  Real-time verification helps to filter off outright scams, but in no way makes the systems more reliable. Empirically, smooth-performance-curve system stats are unsustainable in longer-term and as such should be taken with a grain of salt. However, it doesn´t mean that system stats of a good trading system should necessarily be ¨ugly¨ to be be valid.

And the fact remains that there are very few good trading systems out there out of tens of thousands offered for public subscription. So far there is not nearly a perfect tool to choose the the most appropriate one for the portfolio.

Sources of Trading Systems

with one comment

The ecosystem of automated trading develops fast. Capital allocated to system trading through industry leaders, such as Covestor or Collective2, reportedly grows by 50% annually.

There is still a plenty of room for growth as the investors ¨chop off the old block¨, i.e. disallocate the funds from chronically non-performing and increasingly risky traditional investments in stocks and bonds.

I here list 8 sources for you to choose as a provider of trade signals for your system trading account. Those sources are the ones likely to be used by both emerging system developers as well as investors.

Collective2
Collective2.com or C2 is an internet-based company. C2 collects performance data of various trading systems, independently verifies such performance data and makes the systems available to subscribers to trade in real-life trading accounts. At the time of writing there are about 7’000 trading systems registered on C2.
The way it works is — you go to C2 web site, register as a user, find a trading system which, as an example, shows 88% annual return, make a few clicks to set the system up to send the trades to your brokerage account and, if the systems lives up to the expectations, you have just arranged for an investment with 88% annual return.
C2 promotes itself as think of Collective2 as „do-it-yourself” hedge fund.
C2 works only with hypothetical data, although it checks all the signals in real-time and provides both estimates (slippage, realism factor) and tools for investors to evaluate what performance in live accounts would look like.

Covestor (and cv.im)
Covestor is one of the best-managed and innovative trading system aggregators.
Covestor displays performance data from live trading accounts and is limited to stocks only.

Zulutrade
Zulutrade deals with hypothetical forex signals only.
Zulutrade is probably the fastest growing of all system aggregators. It takes only a couple of minutes to sign up as a system vendor. Zulutrade is equally easy for investors as account opening procedure is straigthforward and easy with any of the selected brokers.
There are no fixed fees for neither system vendors, no investors. Systems can be added and removed from trading in live accounts with just a few clicks and at no cost. Fee for the services is pay-as-you go in form or bid-ask spread markup. Such spread mark-up (about 2 pips round-turn for the most liquid currency pairs) is then shared between Zulutrade and the system vendor.

Tradency
Tradency service is available through selected forex brokers, including several major retail brokers, such as FXCM.
Tradency system performance data is hypothetical rather than based on live account trade logs.

Fxbees
If you´re looking for system aggregator service for forex signals based on live accounts, then Fxbees.com is for you.

Myfxbook
Myfxbook positions itself more than a community of forex traders rather than system aggregator service provider.
Forex traders allow data from live forex accounts to be explained on Myfxbook website. Potential investors can review the data and contact the trader directly for signal delivery terms and conditions.

AlphaClone
AlphaClone compiles data about major equity positions from 200 major hedge funds and institutional investors from their public filings.
There is a time-delay involved as such public filings with SEC are made quarterly. If you feel comfortable to ¨clone¨ positions of, say Warren Buffet, this is the service to use.

Alpari PAMM
Alpari is a Russian-owned forex broker with operations in several countries, including UK and UAE.
Alpari customers may enable their live account performance to be available for public disclosure. If done so, the live account performance is ranked and any investor may open PAMM account to copy the trades of the most profitable traders.
The fees related to PAMM account are structured as performance fee. Under this arrangement, investor pays a share of profits as a performance fee and such fee is shared between the broker and the trader.

Source: free e-book Be Your Own Hedge Fund Manager.

Review: Tradency System Trading Service

leave a comment »

Tradency is a web based service to compile and verify forex trade signals from traders and route such signals for autotrading in live accounts.

Investors access trading system ranking and selection tools only through their broker web pages, but not directly from Tradency website.

There are more than 1800 single currency-pair systems available, as well as a pre-selected system packages. The customers may subscribe to any number of single currency systems by doing research themselves. Or, they may choose one of 19 Top Portfolio Packages. Each such package contains 2-5 single-currency systems bundled as a strategy (pls click the thumbnail for an illustration).

My first impression of Tradency service is as rather average in terms of user interface and content. However, integration of the service in brokers´ web pages is a major competitive advantage. Packages suit perfectly to customers who are happy with shortcuts and have no interest or qualification to select trading systems by themselves.

Written by A.S.

May 27, 2010 at 1:16 am

Forex Market Today: 99% Bogus Volume?

leave a comment »

An importer in Europe buying equipment from Japan exchanges euros to Japanese yen — this represents a forex transaction serving a merit of faciliating international trade. But sounds so old school, doesn’t it?  Today forex is probably 99.9% trading for the purpose of trading. To capture trends, to trade patterns, to use as an alternative to casino … whatever, but not to serve real trade transactions.

Accordingly, the forex market should be approached as a subject of mass psychology and algorithmic trading with little relevance to what the underlying instrument represents. By observation, the forex market has got as close to random walk as any other market in history. Will the forex market eventually transform itself, effectively, in casino which depends on constant inflow of new money and where only the house [i.e. broker] makes the money? Recently it doesn’t look a remote possibility. There are a lot of markets which are much more easier to trade [i.e. more profit with less risk] and where random walk is something far from reality.

Written by A.S.

August 6, 2009 at 9:33 am

How many system traders are out there?

leave a comment »

Given the unquestionable benefits, one would expect that millions of investors use the system trading through available internet-based service providers. The actual number of active system trading customers may be a  surprise. My quick-and-dirty estimate is there is only a few thousand active investors who use system trading for investment purposes. By far most of them are small investors with $25k accounts or less.

I draw my conclusion from observing activity on popular system trading interned-based services zulutrade.com, collective2.com, covestor.com and others.

Fundamental analysis in trading system development

leave a comment »

Noticed this post on SeekingAlpha [thankx to forex_gal for the tweet].

This remainded me of my own research done a few years ago. I didn’t know “the he Austrian school of economics that defines inflation as the expansion of money supply”, but my hypothesis were very similar.

My first presumption was that the inflation measure is M3/broad money supply less GDP growth. The idea was that GDP growth increases the need for more money in circulation to service the economy. So, GDP “neutralizes” money supply effect as a inflation-inducing factor.

My second presumption was that higher inflation induces stronger currency. This comes from observation in the currency markets that higher inflation data usually lead to stronger currency. And academic logic should suggest that higher inflation should mean weaker exchange rate as the inflationary currency gets debased by increased money supply (aka money-printing).

The marketplace reality defies academic logic — higher inflation usually means stronger currency (of course, this applies to low-inflation environment only, but not to hyperinflation). There may be a good explanation. Higher interest rates are generally associated with higher inflation, and such interest rates may be a good deal an investors, but a bad deal for domestic population. The catch is that population can not get out of bad deal (higher inflation and interest rates) while trader/investor can switch in an out of the currency instantly. However, in the long run the currency should decline in line with the money supply differential.

The whole methodology is to project money supply differential and plot it against exchange rate. In the long run, the both parameters should converge. In short term the parameters will fluctuate away from equilibrium in one or another direction.

My finding are that the parameters converge fairly consistently for all the major currencies. In Novermber 2007 our reasearch concluded that, according to this methodology, the British pound is overvalued by about 60% and such overvaluation disbalance has been accumulated over about a decade. In Y2008, GBPUSD declined from about 2 to 1.36 at its lowest point.

Can the methodolgy be used for a valid trading system? Hardly. The problem is that even if fundamental analysis correctly determines the magniture of the disbalance, it has no way to tell when such disbalance is going to correct. As in the example above, GBP disbalance accumulated for about a decade before at least partial adjustement took place. As Keynes correctly noted, “market can remain irrational longer than you can remain solvent”.

If you run a multi-billion fund and make massive macro bet on currencies, to have such fundamental analysis for the merit of second or re-inforcing opinion, is a prudent and professional choice. For small traders/funds, it is beyond limit or merit to maintain such fundamental analysis. They are probably better off by just following some trend-following rules. If the price breaks, just go with the trend. More often than not dumb/uninformed trend-following trade will be as good as smart/informed trend-following trade.

Written by A.S.

June 11, 2009 at 8:43 am