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| Capricorn in the News | » Back | | | | -- e-Forex Interview with Mikkel Thorup
CIO and Founding Partner of Capricorn Asset Management.
SWITZERLAND, January 09, 2009 (e-Forex)
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Mikkel Thorup, Capricorn Group Chief Investment Officer, espoused this two-tier approach:
“In today’s markets our primary concern is credit risk when dealing with brokers or execution providers. It does not really matter that a broker provides top notch execution, but then could be out of business the next day, and taking our clients money down with them. Thereforewe only deal with banks or top rated FCM’s. When looking at execution and technology it is paramount for us that platforms are reliable and have low latency, together with the ability to deal via phone as a backup if there should be system failures. If these conditions are not met, then we will not be entering into business relationships.”
On a positive note, virtually all Forex brokers are focused on one line of business (retail Forex) and are not directly affected by what is going on in the market. Despitethe credit difficulty that corporate borrowers face, forex brokers polled do not have plans to curtail the leverage level offered to clients. In terms of financial backing, however, it is worth noting that the majority of forex broker firms are each owned by 1-5 wealthy individuals, while most of the larger ones have received capital infusions from private equity firms.
As a former management member for a major Forex broker dealer, I understand that a great degree of sophistication is required to manage all financial operations between the broker and clients and between the broker and the interbank market. As an illustration, a single major broker may transact more than 5 million trades with clients in a single month – a level of trades that may actually exceed the turnover seen at Deutsche Bank, the largest FX market maker. So even though the average trade size of these Forex brokers will be a fraction of the average trade of Deutsche Bank, the technical requirements to keep all back office operations in order are high and expensive.
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