We strive to be honest with partners and clients. We do not want to withhold information, no matter how unpleasant it may be.
The second half of autumn was an incredibly difficult period in the work of our foundation. The situation in the current phase of the market led to a drawdown of 20.2%.
In October, most of the strategies showed the maximum drawdown level at the same time. In terms of scale, the situation can be compared with 2018, when the total loss was 18%. We have considered the events of 3 years ago when developing our current strategies.
As for October 2021, the total drawdowns for 2 strategies exceeded the historical maximum (2018) by 4%.
To summarize the information, we want to inform our clients of the following:
Following the results of the previous financial month, 2 problems arose that we discussed at the beginning of cooperation:
- with liquidity;
- with strategies and instruments that, as a result of maximum correlation, reached a drawdown at the same time (systemic risks).
What We Done
We are working on the situation and have already taken steps to minimize losses:
- At the beginning of November, we revised the instruments and strategies, chose the problematic ones, and lowered the risks from 10 to 50% for them.
- In the entire portfolio, risks were reduced by 1.25 times (on average).
All trading strategies were immediately retrained, the problems and situations that happened in October were considered.
What Are We Planning to Do?
The above steps are the minimum that should have been done immediately, after the October results. We are not stopping, we are planning further work to stabilize the situation and eliminate the consequences in the future. To do this, the following updates are performed:
- Reduce market risk by adding new instruments to the portfolio.
The team of our fund has already started developing and collecting data on the most liquid and interesting instruments. As a result of this work, a shortlist of new instruments will be compiled, the process of retraining strategies and adding them to the working portfolio will be launched.
These activities will help reduce trade sizes, diversify your portfolio of strategies, and reduce your impact on the market. As a result, we will improve our market risk management.
The terms of this update are 1 month (approximately).
- Systemic risks.
The development of new strategies does not stop. This work is carried out regardless of success in trading. Already in the next month, tests of strategies will begin, which have shown good forward tests on paper in the period September-October 2021. Based on the test results, a decision will be made and strategies will be added to the overall portfolio.
When developing new strategies, the main efforts are focused on situations such as those that have already happened. Thus, we plan to reduce the likelihood of drawdowns in future work.
The update period is from 3 to 6 months. Before launching the strategies, testing on real FOBS accounts is planned.
What to Do for Our Clients
There are 2 ways for the development of the situation: optimistic and pessimistic. In the first case, the worst is over and the situation will level out. In case of a pessimistic development of events, reaching the drawdown limit, the company’s capital partners will need to decide on further actions.
We have prepared 4 options in the fund:
- Raise the target from 20% to 25% and continue trading when the drawdown reaches 20%.
- Take a break, stop trading until update 1 on market risks is implemented (implementation period is 1 month).
- Take a break, stop trading until the developed updates 1 and 2 are fully implemented (period from 1 to 6 months).
- We stop trading and end cooperation.