Frequently Asked Questions
What is the foreign exchange market?
The foreign exchange market, also referred to as the “Forex” or “FX” market is the largest financial market in the world, with a daily average turnover of approximately USD 3.5 trillion. Foreign exchange trading is the simultaneous buying of one currency and selling of another. Many of the world's currencies are on a floating exchange rate and are traded in pairs; for example Euro/Dollar or Dollar/Yen. Generally speaking, only professional traders are able to access the global FX market pricing. Others interested in trading FX generally use clearing brokers, referred to as Futures Commission Merchants (“FCM”). Astor Capital receives and trades its FX prices from its FCM.
When is the foreign exchange open for trading?
A true 24-hour market, the “cash”, or “over-the-counter” or “interbank” foreign exchange trading begins each day in Sydney and moves around the globe as the business day begins in each financial center: first Asia, then Europe and finally the Americas. The FX market is only closed on Sunday. Unlike any other financial market, investors and other market participants can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night. This continuously open market greatly limits overnight risk, commonly seen in the exchange traded stock market, as gaps between closing prices and the next day opening price. Having exposure 24 hours a day, 6 days a week also has the potential to create additional risks and opportunities during evening hours in a given time zone. This requires strict risk control measures to monitor open positions at all times.
Where is the central location of the foreign exchange market?
Foreign exchange trading is not centralized in a single geographic location or exchange, as with the stock and futures markets. The entire FX market is the sum of the exchange traded futures market and the “cash”, over-the-counter (“OTC”) or “interbank” market (named due to the fact that transactions are conducted between two named counterparts, frequently banks, over the telephone or via an electronic network). Astor Capital Management uses an institutional platform to execute FX transactions. This platform benefits our investors by providing us improved pricing over a retail FX platform and the ability to affect much larger trades due to increased liquidity. This increased liquidity is an important element in our investment strategies since it allows for narrower bid/offer spreads. This is an advantage over traders using retail platforms to access the FX market, with their wider spreads. This is part of the Astor Advantage.
How does an investment with Astor Capital Management compare with traditional investments in stocks, bonds or mutual funds?
Foreign currency investing differs from the stock, bond and mutual fund markets in that returns of FX investing are not normally correlated to other markets. The US equity markets have historically gone up and down with the US economy’s strengths and weaknesses. Astor Capital managed FX accounts may have gains consistently without regard to bull or bear market cycles in the stock or bond markets. Of course, the cash FX and FX futures markets have experienced losses. This lower correlation between the traditional equity and bond markets returns and Astor Capital managed FX accounts provides a valuable contribution to investor portfolios in the form of diversification. There are many articles and books that discuss the advantages of diversification into non-traditional asset classes.
What are the benefits of a professionally managed account vs. individual investing??
A professionally managed account allows investors to have a team of professionals manage the trading on a platform that allows execution at professional pricing and risk management 24 hours a day. The individual investor is dependent upon the advice of a broker or analyst who is attempting to pick one or a few stocks out of thousands, or one mutual fund out of the many thousands that are available For different investors that may have different investment objectives. Managed FX CTA’s focus on their area of expertise.
What does it mean to have a "long" or "short" position?
In trading parlance, a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. In this scenario, the investor benefits from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In this scenario, the investor benefits from a declining market. However, it is important to remember that every FX position requires an investor to go long in one currency and short the other.
How does Astor Capital Management seek returns?
Many investors are familiar with the stock and bond markets. They buy and sell securities that represent US and foreign domiciled companies in either their taxable or tax deferred trading accounts (including IRA and other tax qualified retirement structures). The stock market allows investors limited leverage, while the foreign exchange market that Astor Capital Management trades allows for greater leverage. Increased leverage provided by the foreign exchange market provides investors the potential for larger than typical returns and also for larger losses. Judicious use of this available leverage is one of the primary tools which attempts to create more economical winning trades. Historically, our typical leverage on trades varies from less than 1-to-1 up to about 10-to-1. Strict use of stop loss points on short term trades and mathematical hedging of intermediate term trades helps us limit the large losing trades. Although in extreme market conditions, the use of stop orders may not limit losses to intended amounts, and hedging techniques may not limit losses. Together, these attributes provide the potential for outstanding returns while mitigating the risks to acceptable levels for some investors.
Can I invest my IRA or other tax qualified structured funds in Astor Capital Management managed investments?
First, we are not tax advisors. The tax laws change frequently and we request you to discuss your specifics with your tax advisor. Investors can and do invest tax qualified structures in Astor Capital Management’s managed investments. There are many different types of tax deferred accounts offered by employers and financial institutions, including Traditional IRA, Roth IRA, Simple IRA, SEP IRA, Beneficiary IRA, Health Savings Account, Coverdell Savings Account, Profit Sharing Plan, Money Purchase Plan, and Defined Benefit Plan. All of these accounts can be invested with Astor Capital Management. We strongly believe in the benefits of investment diversification, which can allow investors to potentially achieve both higher returns and lower portfolio risk.
Does Astor Capital Management use a fundamental or a technical approach to trading in the foreign exchange markets for its clients?
While the prices of securities of individual companies are affected by the slightest news item, the foreign exchange markets’ primary direction is driven by fundamental factors governing the exchange rates between different nations. This underlying foundation on global economics and fundamental factors provides for possible sustained and stabilizing momentum in this market that is missing in many others. Historically, fundamental forces drive the intermediate and long term direction of currency pairs. However, technical factors that are the result of short term imbalances in supply and demand may provide opportunities for profits as well as hedges against positions held in favor of the longer term movements. This combination
of fundamental and technical factors makes the forex market an ideal trading vehicle, providing the opportunity for profits when proper risk management techniques are employed - of course, there is a possibility of loss. Additionally, Astor Capital Management executes all trades through an institutional FX platform which provides interbank pricing (compared to retail FX platforms).
To better understand the costs associated with an investment in an Astor Capital Management a managed account, please contact us for a complete information package which details the costs, risks, and potential rewards.
What kind of trading strategy do we use?
Our traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, numerous patterns and mathematical analyses to identify trading opportunities, whereas fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor. The most dramatic price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectation of an event that drives the market rather than the event itself. Predominantly, our trading strategies are derived from decades of experience in the trading pits of Chicago and on Wall Street in New York.
Is this a hedge fund?
No, Astor Capital Management is registered as a Commodity Trading Advisor (“CTA”). Hedge funds typically co-mingle client monies into a “fund” that have lock-out periods, where funds can only be withdrawn at certain times. Other hedge fund restrictions typically include higher initial minimum investments amounts (sometimes $1,000,000 to $10,000,000) and holding the clients’ funds within their largely unregulated entity versus with a registered firm. Astor Capital Management managed FX accounts involve funds deposited at a regulated U.S. clearing broker held in the name of the client. Furthermore, Astor Capital Management has no access to a client’s funds, only access to make investments in the account. All withdrawals are strictly under the client’s sole control. Another advantage of Astor Capital Management’s offering is that it is a completely liquid investment, which can be turned into cash in just a few days. It is important to emphasize however, that this is not to be considered a short term investment.
Are there any tax benefits in investing in a foreign exchange specific CTA over investing in stocks?
First, we are not tax advisers. The tax laws change frequently and we request you seek the advice of a professional in this area. There are tax advantages. Currently, stocks that are not held for one year are taxed at the short term capital gains rate. Gains from FX trading are taxed similar to futures contract gains, where 40% of the gains are taxed at the ordinary income tax rate and 60% of the gains are taxed at the long term capital gains rate (which is currently 15%). * Any change in tax rates may affect this.
Will I be able to see what investments are being made by Astor Capital Management for me?
Absolutely. Clients have complete visibility to their accounts at all times via the clearing brokers’ back office system. When we invest for the entire portfolio (all clients) we make one trade using an institutional platform. The clearing broker’s operations group allocates each executed trade to the individual client accounts after execution. Our approach typically executes all client accounts at an identical price during normal market conditions. The gains and losses of each trade allocated to your account are visible and transparent in your clearing broker statement. A complete history of the account is also available over any time frame, along with consolidated statements for any individual month the account was active.
Where can I learn more about foreign exchange markets and Astor Capital Management's investment strategies?
Simple. Contact us through email or the toll free number provided and we will send you additional marketing material including our Disclosure Document. There is also a wealth of educational material on the NFA website at www.nfafutures.org