Hedging and Risk Management comprises many faucets including
Market Risk and Operational Risk for the institutional investor
to protect returns against adverse market conditions. We are experienced in all of the areas listed
below and welcome your enquiries into the Commodity Trading Advisor "CTA" service that best fits your
operational demands.
OPERATIONAL RISK:
Operational Risk can be defined as the direct or indirect risk of loss through internal or external processes. Companies involved in exporting or importing can expect to have Foreign Exchange Risk. A company with operational offices in another country will be faced with foreign currency payroll considerations. If you factor the issues associated with borrowing money for large capital expenditures, interest rate fluctuations, political risk and a host of other issues that compound themselves when working in both local or foreign jurisdictions you can begin to understand that a prudent company will want to mitigate the loss of money through its effective management of Operational Risk.
Although the field of risk management can encompass a wide assortment of management practices, our focus at Genuine Trading Solutions is largely reflected in financial loss from any or all of the items listed below:.
- currency conversion
- payroll
- accounting
- interest rates
- commodity or product pricing
MARKET RISK:
Market Risk is most often a concern for corporations, hedge funds, pension funds, endowments, individual portfolios or any entity with an exposure to the stock or bond market.
Large market swings can cause uncertainty, even fear at the prospect of negative portfolio returns. Individuals and companies without a risk management program are faced with only two options when attempting to protect against an anticipated downturn in the market.
1. Attempt to time an impending market correction by selling at the highest price possible prior to a pull back in prices:
This practice sounds easy, but to-date no person or professional money manager has successfully been able to consistently time the market before a correction occurs. At best, such an event is more the result of Good Luck rather than savvy market timing. To prove my point all you simply have to do is check the (publicly available) number of times a Mutual Fund manager has returned top quartile returns.
Virtually all market experts will tell you the greatest risk is not in missing a pull back but in liquidating a portfolio too soon and watching helpless as it continues its rise to new highs. When you consider the fees associated with selling then buying back plus the eventual re-entry at a higher price and the lost returns. Well, I dare say the stress of these events has convinced the most ardent market timer to abandon the practice and deny he even attempted such a fool hardy course of action.
2. Do nothing and watch helpless:
The do nothing approach takes many forms. At one end you have the Mutual Fund who by mandate must stay fully invested at all times and therefore is prohibited from moving into a cash position. At the other end is the smaller individual investor who falls in love with his stock and forgets the whole point of the exercise is to make money by increasing wealth for the eventual security of his family.
The do nothing approach or the "buy and forget" as we sometimes call it, is by far the most insidious of the two. These are often the stories read about in the newspaper of how the little guy has no chance against organized big business. When it comes to managing Market Risk, we specialize in the following markets:
- Equities
- Fixed Income
- Foreign Exchange
- Commodity Basis hedging
WHAT ARE MY OPTIONS:
Thank fully there is a low cost solution, and regardless of your own situation, Genuine Trading Solutions can help. We are fully registered and accredited by the CFTC as a CTA (Commodity Trading Advisor). Not only will we analyze a viable alternative, but we will structure and maintain a workable risk management program custom tailored just for you.
The use of derivatives has long been a recognized approached to managing risk. In fact, the work we perform can only be accomplished with the expertise of a recognized Commodity Trading Advisor and we believe the futures market is the best and least expensive solution. How we do this can be complex or routine depending on the circumstances. Maybe you're considering the use of a Commodity Trading Advisor for the first time or thinking of a change. Either way, we encourage you to telephone us today for a more complete understanding of the strategies mentioned here.
