Q&A: Currensee Aims To Revolutionize Money-Under-Management CTA World

Feb 21 2012 | 8:02am ET

Currensee is an online investment platform designed to make forex markets accessible to the average investor by allowing him/her to automatically replicate the trades of a group of forex traders (called “Trade Leaders”) vetted by Currensee. The company does what CEO Dave Lemont characterizes as “a ton” of due diligence on its traders, who can be located anywhere in the world and whose records are posted online for investors to see (at the time of writing, the top Trade Leader is Joiny Jiang, a money manager from Nanjing, China). To find out more, FINalternatives spoke recently by phone with Lemont.

Can you tell me something about Currensee?

We’re all about creating an alternative investment for the world’s currency markets, that’s the mission of the company. We’ve essentially created a completely new way to invest. We find emerging managers all over the world and then you…can build your own little fund of funds directly on the internet by selecting these Trade Leaders that we present to you—and by the way, we do a ton of due diligence on them...You pick them, you build your fund and in a single account, you can have multiple managers, and we replicate the trades from the managers’ accounts into your account.

We’ve revolutionized the money-under-management CTA world [where] today you fill out a bunch of paperwork and it takes you a week to get in and a week to 10 days to get out and then if you want to follow a different manager, you open up another trading account…It’s very complicated.

The other cool thing is, because it’s foreign currency trading, it’s not correlated to the stock market. It’s very much of an alternative investment. And based upon how volatile the stock market has been this year, people need alternative investments. And the other beauty is, you don’t need to know anything about foreign currency trading—all you need to know is how to read a performance chart on risk and reward, the same as you’d read a performance chart when picking a mutual fund. It’s a very powerful alternative investing tool….And the returns have been very exciting. It’s really possible to build a very exciting portfolio for yourself or select a single Trade Leader, as we call them.

How do you choose your Trade Leaders? What criteria do you use?

We’re looking for emerging managers, and by emerging managers I would say these are professional people that have experience managing money —somewhere in the $1 million to $25 million range. Not that we would reject someone managing more, but we’ve also found that people managing tons of money no longer have the returns. And so we’re looking [for managers] at the right stage of their career, where they’re building their career and essentially, their challenge is gathering assets, but they’re fantastic traders…They do it all day long, it’s their only job, it’s the way they make an income. We give them the platform to gather the assets and they do what they do best. We take care of the rest.

As for the Trade Leaders, let’s face it, we’re picky. We’re looking for managers who have strong returns, meaning the returns should be anywhere from 1% to 10% per month, but their drawdowns are below 20%, hopefully below 10% in terms of the maximum drawdown that they would ever experience…And the most important thing, I would say, is people that manage their own money in a very disciplined manner, by that I mean, if they have a strategy that says, ‘I’m willing to risk 1% of my account on my trading day,’ that when they’re losing, they close. When they’re winning, they take their profits. Somebody that has a strategy and they exhibit to us that they are honoring that strategy to the ‘T.’

Now, the way we do due diligence is, we have a pretty strict process they have to follow: We interview them, we review their risk management practices, we run background checks, we invest with their system, with our own dollars, in a live account, and…we make sure that what they say they’re going to do is what they really do. And then we test the replication side of it, so we need to make sure that when we replicate their trades from one account to another that our correlation is strong.

There are certain strategies that wouldn’t work in a replication mode—if you trade a thousand times a minute, we’re not going to follow that. High volume is okay, but not people who are algo-trading, it’s not going to work in a system like ours or people who are trading news cycles. If you have a trader that’s waiting for the nonfarm payroll to be announced and they want to play the sweetness of the market during the nonfarm payroll announcement, we’re not going to take a guy like that because, as you can imagine, we’re going to want to be able to replicate his trade to a thousand other traders simultaneously and the market’s moving too quickly in a news cycle.

We’re looking for people that have good strategies, very, very disciplined, they take some risk but they control it well…We’ve tested them in a thorough way to make sure everything we think about them is true and then, if we make a mistake, we’ll remove them from the leader board. We’re not perfect—or they may not be, they may not follow the strategy they said, or get emotional. A lot of them are automated traders so they do have trading programs and we like those in a way because they take the emotion out of trading.

Where are these Trade Leaders located geographically?

What’s exciting about our program is that it’s truly international. We have Trade Leaders in China, we have Trade Leaders in Japan, we have Trade Leaders in Russia, in the Czech Republic, they’re all over the world. Because we can replicate the trades from one trader’s account to another, they can be located anywhere using a broker that we support. And that’s a really powerful differentiator for us because, typically, if a bank were to offer this, they can only offer people who trade on their platform…

We [don’t want to] move a Trade Leader to another broker…because he may be comfortable with the institution system, the service he gets, the charts he sees, and we’re trying to make him psychologically free, if you know what I mean. We want him to focus on his trading, we don’t want him to focus on the marketing, the paperwork, how much money is following him—we handle all of that. We just say, ‘Trade.’ And one of the big things is that he doesn’t know who the investors are [who are] following him. In the money management world, people would hand the money to him, and now he has to put a bigger position in to make the same money for all the people. And in our case, let’s say that he has a $25,000 account that he trades, he never needs to change the size of that account. He just trades from that account and we are handling all the trade sizes, scaling and the replication...

Who is your target client?

One is [the] foreign currency traders…that aren’t very effective on their own…and they’re looking to diversify their trading by following someone who’s a great trader. Most Forex traders lose money and our program gives them a way to be in the market by putting Trade Leaders to work for them. But the bigger market that we’re after is what I would call the ‘active investor.’ The active investor is someone who, he may trade managed futures or ETFs, or he’s very active with his financial advisor, and he’s always wanted to take advantage of foreign currency markets but he doesn’t know how to trade. He wants to participate in alternative investments, and we’re perfect for him.

The other market [is] institutions. We continue to build partnerships with large hedge funds, family offices, funds of funds, and other asset gatherers. These folks are simply looking for great traders that offer alternative investments, and they love the fact that we allow the risk to be controlled…

What kind of risk control do you offer?

There are three risk controls: an overall drawdown control, that when you’ve lost a certain amount, the system will stop. An open drawdown control, so just the open positions tracking and then a leverage control that allows you to de-lever, so, if the Trade Leader trades like, 5 to 1, you could say, ‘I only want 50% of that,’ now it creates a 2 and ½ to one leverage. If the customer is a high-net-worth person who signs a special contract, they’re allowed to lever up. But only if they sign a contract that says they understand the risks. So they may say, ‘Well, this guy is pretty conservative, I might take a little more risk than he takes and double the size of his trades.’ And we’ll allow you to do that, but you must sign a special agreement for it.

In our software, if you were to follow Trade Leader 1 and Trade Leader 2 and Trader Leader 3 in your single account, we allow you to set drawdown controls on each one of these leaders, and even the amount of leverage they control. So, you can say, ‘I don’t ever want to lose more than 5% or 10% or 2%’ and then, if that were to happen, we shut the system off….Part of trading is not just winning but controlling when you lose and [trying to ensure] that the day you lose is not such a terrible day that you can’t recover from it.

These controls are extremely popular with the high-net-worth and the institutional market for us. When a pair that a Trade Leader trades—foreign currency traders trade the dollar/Swiss or the dollar/yen—feels too volatile, the investor or asset manager can say ‘I don’t want to see any trades from this pair in my account today,’…You are able to have that level of control.

You said earlier that larger money managers stop generating great returns. If that’s the case, is there a point at which you’d stop working with a manager whose assets had grown too large?

Well, the point is, that he never manages the money in our system. And that’s the difference—he may have a lot of followers who are generating a lot of volume, but he’s still trading his account….You think about a manager, he starts out trading a $1 million account. Now, 10 years later, he’s trading a $250 million account. That’s a big psychological difference, and some people are just fine with it and other people don’t do well with it.

How do you find your Trade Leaders?

Four main sources. We started a social network for foreign currency traders three years ago. The network is free, but you must link to a live trading account. We hand-pick the great traders that rise to the top from the social network and recruit them to be Trade Leaders. Source two, people come to us because of our brand, they understand what we do and they say, ‘How about me? Here’s my track record,’ and we say ‘Okay, that’s an interesting piece of paper but we need to look at your account and verify it’s for real.’ We conduct our due diligence, and we typically take one to two traders out of 100 that apply. And the third is…we have our own scouting mechanisms, we’re in the industry, we look at all sorts of financial portals, we look at other promotional material and if we think that we’ve found someone, we’ll reach out to them, tell them about the program if they haven’t heard of us yet. Last but not least, we have an affiliate program where affiliates from all over the world sell our product for us and those affiliates, again, are connected into the foreign currency world, and they may know of some interesting trader that they’re affiliated with and they’ll refer them to us.

How many Trade Leaders do you have on your platform?

We have about 17 right now, and we range from 15-20, typically in that range. We’re looking for a short list of great people, rather than a giant list of average people [laughs]. It’s about an elite network of foreign exchange managers. We’re not out to give people so many choices that it’s confusing. We want to give them a great set of choices, because some traders hold positions for weeks and some hold them for minutes, so we want to give them a good array of traders to choose from, but we’re out to make it so competitive to get on that list that people can feel comfortable that we’re trying to do a lot of due diligence to present them the best of the best.

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