IntelligentHQ Talks with Arif Alexander of Scandinavian Capital Markets.
Scandinavian Capital Markets (SCM) is a new venture founded by Arif Alexander that provides unique investment solutions in the largest financial market in the world – Foreign Exchange, best known as Forex. The company manages automated algorithmic trading with manual trading with diversification being their main target and goal to deliver results for their clients and traders. With a solid experience, expertise and knowledge in trading the Forex markets, SCM’s, is a new venture in the fast evolving Forex industry, that uses wisely technology and traditional trading with the main aim to achieve the goal of producing excess returns through managerial skill and prudent investment decisions.
The primary success of Scandinavian Capital Markets is measured by their intelligence and ability to generate higher returns that is not a direct result of increased risk.
The firm’s market philosophy, is based on the perception that all market climates offer the options of growth and success, what makes the company the market leader in automated high frequency trade and in the development of tailored trading models. As per SCM philosophy, the markets always offer advantageous trading opportunities.
Arif Alexander was born in Stockholm, Sweden. He earned a Bachelors degree in Media & Marketing from the University of Westminster in London, UK and Management from Ryerson University in Toronto, Canada. After completing his academic education, he worked for various media and financial institutions in London, Canada and Sweden and has been involved in the financial markets for more than 10 years where he has had a lead role in business development and strategic management.
He has also been involved in several web based startups in both the UK and Sweden. He speaks four languages fluently and is currently based in the SCM office in Stockholm.
IntelligentHQ: Please tell us about scmforex.com : company background, market positions, volumes, offices, regulations, etc and yourself.
Arif Alexander: Scandinavian Capital Markets is an asset and wealth manager in the FX and global currency markets based in Stockholm, Sweden. I founded the company in 2011 with a group of senior traders. Our focus was to bring and merge both automated algorithmic trading with manual trading to create a complete and comprehensive investment solution for our clients that would not only diversify but also outperform other asset classes such as stock indices and mutual funds.
SCM caters and targets both affluent private investors in addition to institutional investors who are looking to diversify their portfolio and typically look for higher returns than traditional investments. Although we are still a relatively young firm in industry terms, our strategies and algorithms have been developed many years through a sophisticated process and methodology which we finally presented under the banner of Scandinavian Capital Markets. My own background is quite diverse.
I was born and raised in Sweden, with a mother from Finland and father from Pakistan and lived in both London and Canada for a number of years. I worked in both finance and media such as CNBC for brief periods of time and have been trading the FX markets for many years developing my own strategies and trading plans particularly focused on technical analysis, Elliott Waves and contrarian trading. Parallel to this, I have also been involved in several e-commerce startups in Sweden.
IntelligentHQ: As a new company entering the market what are your key offerings for clients?
A. Alexander: SCM’s main goal and offering is to be able to generate realistic profitability by applying low risk, yet bring consistent profitable results to our clients. Our ambition and business model from the start has been to have low correlation to other asset classes in the clients portfolio. This means a partial allocation to managed currency trading and uncorrelated returns will reduce a portfolio’s total return volatility and provide a better total return consistency to the clients on a long term basis.
Our keyword and niche is diversification. We have for too long seen portfolios be too exposed to the stock market in addition to other asset classes that are dependent on current market sentiment. In the volatile markets that we have seen for the past few years since 2008, people have started to understand the concept of risk diversification much better and are looking to diversify their portfolio much more in markets that are not necessarily correlated or dependent on index movements or market climate.
An overwhelming part of SCM’s asset management have been developed and implemented through a sophisticated process and methodology that have been developed in-house throughout many years. Our algorithms monitor price action 24/7 and identifies and detects trends, both long and short, in addition to range bound and builds up positions based on the current trends. The positions are then allocated and split into several small trades and executed in milliseconds. This means our risk holding period is significantly shorter making every trade less riskier than traditional trading. Most of our trading strategies are done and executed with the risk in mind and we always determine both risk and profits taking levels before entering trades.
To most effectively increase the return rates, we trade currencies with deep liquidity and maintain a 24-hour-a-day execution desk.
IntelligentHQ: You are based in Scandinavia and Sweden, a market without clear Forex regulation what are your thought about trading in Scandinavia, Sweden? And its regulatory challenges?
A. Alexander: Being an asset manager in Sweden has undoubtedly been very beneficial for us. People generally associate Scandinavia and countries in the Northern hemisphere with a sense of stability and solid banking infrastructure and the Scandinavian market holds great potential for Forex trading as FX is still relatively young phenomenon here and growing as we speak. Sweden was also one of the countries that survived the financial crisis of 2008 the best which is why a lot of investors have confidence investing in Sweden. FX is not considered as financial instrument and is thus not regulated in the same way as equities or funds.
We are registered with the Swedish FSA (Finansinspektionen) but also trade on a platform that is regulated by the British FSA and keep our funds under the jurisdiction of the Financial Services Authority. Because the market is still relatively small compared to other assets, we see a good growth rate in the near future and I think as FX becomes more mainstream and common in the Swedish market, there will be a push to regulate it as well which will indicate that the market is big enough to be considered a serious force.
IntelligentHQ: You are targeting affluent / wealth investors / traders what are your key offerings and main differentiation?
A. Alexander: Our startup is different for several reasons. Our niche and competitive edge has from the beginning been our embrace of new technology and we have incorporated that in every aspect of the company to be able to be as flexible and efficient as possible. Given our unique hybrid management strategy of tailored algorithmic trading and manual trading, we are significantly better equipped to give our clients good results and growth over time as we have different streams of revenue. This model has worked very well so far and has by and large minimized our loss months significantly as they both complement each other and ensure long term consistency to our clients.
We have for example on our low risk management averaged around 40% in return on a yearly basis while some European indices have been close to 0%. Although bonds and mutual funds can be profitable to have in the portfolio, they will typically only give you around 4-5% per year. A well-managed account in the FX market can typically give you 4% to 8% every month which underscores the value of an investment in this market. All our clients have access to our analysts and we share our research content with them which ensures transparency and that the client is involved in the process from step one.
IntelligentHQ: There is a debate on High-Frequency Trading, what are your views on this?
A. Alexander: High-Frequency Trading is undoubtedly one of the trendiest subjects in the markets and has received considerable media attention in the past few years. As a part of our firm is based on HFT, we are naturally inclined to have a positive approach as we have seen the great potential it holds for our company in addition to the clients that we serve. It not only allows us to take less risks but become more flexible in our trading which ultimately generates more profits and returns to our clients. There are numerous of benefits which are associated with HFT among them lower volatility, tighter spreads in addition to better liquidity in the markets. It has also helped to cut costs for many companies enabling them to become more profitable and competitive in an increasingly tough market. However, the flash crash and subsequent hiccups that we’ve seen on the equities market has naturally made the subject a debated issue.
Regulation on high-frequency trading especially on the equities market is certainly to be expected moving forward as we have seen with recent efforts in Germany. And I think for any business to remain competitive, they will need to take appropriate action in order to adapt to the new regulatory landscape to come. However, technological advancement will continue regardless of regulation, and high-frequency trading on the FX market is bound to evolve and improve, albeit perhaps in a more regulated fashion in the future.
IntelligentHQ: There is a debate about a potential ‘Forex bubble’ or not. At the same time there is a large number of new companies entering the market each month. What is your opinion on current state of trading and the global Forex market?
A. Alexander: The forex industry has had a phenomenal growth in the last five years and the industry as a whole has gone through a dramatic change with significantly more market participants especially in the retail sector. Average daily turnover in the global markets is now well above $4 trillion and is set to reach more than $8 trillion dollar in the next three decades, according to a recent report by Bank of England. The awareness of Forex as an asset class is today significantly bigger mainstream, compared to 5 years ago, largely due to availability and accessibility to the market but also due to the financial crisis of 2008 that shed light and increased the popularity of forex as a serious investment alternative. To meet this demand, there have been a lot of brokers that have flourished due to the popularity but also due to forex not being regulated in many parts of the world which have made it easier for small actors to thrive without many regulatory obstacles.
Although the market as a whole holds a very bright future, with regulators worldwide focusing on increasing the supervision, a lot of brokers will need to adjust to the new regulatory landscape which will most likely contribute to the maturity of the market as it becomes mainstream and more traded as an asset class.
IntelligentHQ: What is scmforex.com doing in terms of trading technologies? How do you differentiate yourself?
A. Alexander: Innovation has been a key factor in our company spirit where we have constantly been improving our algorithms to make them faster, better and more efficient which has so far proven to be very successful. For example, we have been trying to develop and equip our algorithms with machine readable news and for the models to be able to effectively exploit and digest the news flow in the market and incorporate it in the trades that we do. We are also trying to develop algorithms to be able to utilize Elliott Wave principle and identify market conditions for buy signals in the wave structures. A lot of these efforts and many more reflect our ambition to be at the forefront of new technology and innovation which gives our clients the confidence that they will always get value on their invested capital.
IntelligentHQ: Forex industry is using online marketing and social media in a very savvy way, what is your opinion on this?
A. Alexander: To have a presence in the online and social media environments is obviously vital for any broker or company that wants to advance and remain competitive in the market. Given that the forex market is a highly competitive market, a lot of FX brokers have been forced to come up with new innovative ways of reaching out to new potential customers. Traditionally, we have seen a lot of the brokers being confined to marketing via their websites and traditional platforms, however, we have started to see a shift in the way Forex brokers do their advertising with utilizing social media in a better way by exploring new avenues such as LinkedIn and other social media platforms to gain new potential customers.
A lot of the brokers have also been very smart in the way they have provided learning tools and research for beginners to be able to attract and increase their market share. Although, I think it’s great that the knowledge of forex is increasing, however due to the risk of loss for a beginner and novice traders, it is also important for the brokers to be able to better highlight the risks for new investors who don’t necessarily have much experience in trading high leveraged products before to ensure a healthy trading environment.
IntelligentHQ: Give us your vision on social media and trading?
A. Alexander: I think social trading will be the next big battleground that will revolutionize trading in many ways. The industry is undoubtedly moving towards a more shared social trading experience and has enabled traders to connect with other traders in a way that wasn’t possible before. Historically, traders have been relying on fundamental and technical analysis to form their decisions about trading setups. Social trading has added and become another platform and sentiment indicator of the current mood in the market which obviously helps traders to make better judgments regarding their trades. It has also opened up a whole new market for the inexperienced traders who don’t necessarily have the experience or knowledge to trade FX, but still want to be a part of the market and the opportunities that it offers via different copytrader setups.
However, I think the phenomenon is still in its infancy and a lot of brokers are starting to adapt to the new ecosystem and we still have a long way to go until we have seen the full potential between the merging of social media and trading which will yield great results for the industry.
IntelligentHQ: Give us your vision on how the trading, Forex industry will evolve in next 3 years. In which direction will it go?
A. Alexander: The forex market as a whole will most likely grow significantly in the near future as FX is starting to become much more mainstream as an overall asset class. Managed accounts (SMAs) are today growing with approximately 16.5% annually, and account for around $2.2 trillion only this year, according to the Financial Research Corporation (FRC). The retail market will continue to grow with a lot of focus on technology, social media in addition to innovation with new products such as binary options continue to increase. The growth of FX into mainstream will naturally lead to increased regulation in the foreseeable future with increased capital requirements and leverage caps which has obviously been demonstrated by the Dodd-Frank Act in the United States and various other regulatory measures in Europe and Japan.
The industry as a whole is maturing as we speak and a lot of the brokers and players in the market will prefer to be regulated as that’s what clients more or less look at before trading with a broker. Increased regulation will naturally result in more consolidation in the industry, with larger firms acquiring smaller ones that are constrained by more regulation and higher costs. All of this will also lead to a more open and transparent market as it starts hitting the mainstream market in the near future.
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