Was your confidence shaken at all that year? Did you go back to the drawing board? I went back and designed a lot of risk management systems. I paid strict attention to the correlations of all
my positions. From that point on, I measured my total risk in the market every day.
When you trade currencies, do you use the interbank market or the futures market? I only use the interbank market, unless I am doing an arbitrage trade against the /MM. [The International
Monetary Market (IMM) is a subsidiary of the Chicago Mercantile Exchange and the world's foremost currency futures
exchange.] The liquidity is enormously better, the transaction costs are much lower, and it is a twenty-four-hour
market, which is important to us because we literally trade twenty-four hours a day.
What portion of your trading is in currencies? On average, about 50 to 60 percent of our profits come from currency trading.
I assume you are also trading currencies beyond the five that are currently actively traded on the IMM. We trade any currency that is highly liquid. Virtually all the European currencies (including those of the
Scandinavian countries), all the major Asian currencies and the Mideast currencies.
Crosses are probably the most
important trading vehicle that we use that you can't trade on the IMM. [Crosses are a trade involving two foreign
countries. For example, buying British pounds and selling an equal dollar amount of Deutsche marks is a cross.] You
can't trade crosses on the IMM because they have fixed contract sizes.
But you could do a cross on the IMM by adjusting the ratio of the number of contracts between the two currencies to equalize the dollar value of each position. But it is much more exact and direct to use the interbank market. For example, Deutsche mark/British pound
and Deutsche mark/Japanese yen crosses are highly traded and very active.
