Discretionary Management
The Henderson Rowe Derivatives ("HRD") discretionary service is designed to give clients the exposure to risk and potential rewards that CFDs offer, but without the need to dedicate their own, valuable time to the process.
Through the Discretionary Service, HRD will manage individual transactions and the overall composition of your speculative trading account. Unless otherwise stated we will have full discretion over such accounts and therefore we do not need to contact you before we place a trade on your behalf. If you do not specify in writing to us any investment, type of investment or market in which you do not wish us to execute or arrange a transaction on your behalf then we may recommend, purchase or sell any investment or any type of investment on any market.
Our trading approach will be agreed with you prior to trading and any changes to this approach will be confirmed to you in writing (including via email). For full details of our standard discretionary management service please see the section below entitled "HRD Discretionary Managed Account".
HRD DISCRETIONARY MANAGED ACCOUNT
Trade Selection
HRD use our own research coupled with access to access to external fundamental, economic and technical analysis, in order to isolate trades which offer a good risk/reward profile.
The trading approach is contrarian in nature. It uses proprietary developed relative valuation screens that seek to identify stocks that are overvalued / undervalued compared to peers and also compared to the stocks' own historical valuations, as well as through the economic cycle. This screening process can be used as a means to express a view on a particular industry or a subgroup within an industry. It can also be used to create pair trades or market neutral basket trades. It generally allows for a more dynamic trading, but can also serve as a basis for a more detail fundamental analysis. Technical analysis is further used to decide on the entry / exit points, performance targets and stops.
Risk vs. Reward
When deciding upon executing a trade, we subjectively enumerate the probability of profit or loss, using resistance and support lines to set targets and stop losses. We then calculate an expected value return based on these figures and detail a trade time horizon. We would not usually trade unless the expected annualised value return is above 25%.
Trade Sizing
The size of the trade depends upon diversification across an account and the volatility of the instrument involved. We employ a metric, based upon the Average True Range of an instrument's trading over the past 20 business days. This figure is a measure of volatility and is therefore used as a benchmark for a probable trading range over the intended period of the trade. This provides the calculation for a stop loss and thus the trade size. Depending on your attitude towards risk and the agreed set up of your account*, this stop loss (not guaranteed) will account for up to 5% of the portfolio value**, but obviously this could be exceeded.
Holding Period
The holding periods vary but will tend to be over the intermediate term, that is weeks to months, but if stop loss or profit points are hit, holding periods could be shorter.
Once a position is opened it will be regularly reviewed. If circumstances or our opinions change, trades may be closed out early or stop and limit levels may be adjusted.
Summary
Overall, the process is both disciplined, well defined and flexible. The overriding principle is to profit from trades which have a reasonable probability of success, whilst minimising losses.
*We can adjust our trade calculators to reflect your attitude towards risk. 5% is the standard maximum level of risk for our accounts. However, we are able to risk more or less than this figure if you would prefer. Any agreed changes to the standard levels of risk will be confirmed to you in writing.
**Portfolio value refers to the value for the account at the time that we place the trade. This is calculated as the equity plus the profits and losses from open positions.
Discretionary Management – click here for details
Advisory Account – click here for details
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