Exclusive interview with CEO of Make Capital Group:
What are the different divisions of Make Capital and what is the focus of each division?
The Make Capital Group integrated several companies from around the world into a unique setup and now consists of the Make Capital Hedge Fund for private and corporate investors, Make Capital Prime to serve Institutional brokers and the Make Capital brokerage firm specifically designed for professional traders and Money Managers. Our investment managers started prop-trading as early as in 1999 and our technology team helped them to fully automate and further improve strategies. Our technology team were pioneers of ECN-based execution models, automated hedging and smart routing rules that are required for the successful operation of any Hedge Fund. As we have developed a full stack of technologies for both Retail and Institutional Brokers, it was a natural development to incorporate this into a single full-service player in the industry backed by a big Hedge Fund.
What made you choose the Cayman Islands for registration and does the local regulator command the trust that is essential for relationships in our industry?
The Cayman Islands are the world’s fifth largest financial centre and home to about 12,000 Hedge Funds including some of the largest in the world. We have structured our business around the Make Capital Hedge Fund that is quite new, but already allocated tens of millions of dollars of our own and investor’s capital and that works as a guarantor of the credibility and future expansion of our Institutional and Professional business.
Our research into the Institutional world shows that brokerage houses and Professional IBs are quite open to offshore opportunities. They trust our Directors expertise as we have been working for more than 10 years in the prop-trading and brokerage world. We also believe that there is a place for ethical brokers who place as high a value on their own integrity and reputation as they do on regulation.
Do you plan for any other regulatory jurisdictions?
The regulation in the Cayman Islands is considered strong and reliable. Incorporation in the Cayman Islands allows the Group to benefit from offshore tax rates including zero corporate tax and that is why we would rather keep the Group incorporated there.
The other regulatory regimes that are interesting to our business in terms of corporate structure include SFINMA in Switzerland and the FCA. These different regulatory climates are not a priority at this time as our existing corporate structure is more tax efficient, but we will need to revisit them if we decide to further expand in Europe.
Can you tell us more about your hedge fund offering? What strategies are you using and what is your historical performance (and how do you test it?)
We have a set of 68 fully automated strategies based on long term signals and artificial intelligence. All the strategies operate independently and are fully automated on both the opening and closing sides. As a result each strategy works with a small fraction of the Fund’s capital that allows diversification of market risks to achieve higher than average performance. All the strategies are trend-based and tend to perform really well on big market movements. As an example we achieved 280% performance (before applying our performance fees) during the 2016 financial year that was actually quite trend-driven because of Brexit, European and US elections. The downside of such trend-based strategies is that they do not operate well if the market is ‘choppy’ as quick moves up and down can trigger internal fully automated stop losses.
Still our back testing shows amazing 91% profitability year to year based on medium-risk investments with drawdown of up to 18%. We adjust the risk/return ratio based on our internal agreements with the clients and also offer low-risk model with 23% approximate return and 4% drawdown as well as high-risk model that includes reinvestments of profits back to the strategy.
We use 10 years of tick by tick data to calculate historical back-testing and also introduce the negative slippage in our tests that is in line with our live results and inevitable in real markets. The main strategy has been running for 4 years now and we are happy to see that live results match our prediction models. We all know that no single strategy will work in all market conditions and that markets are always changing, which is why, unlike traditional strategy development, we incorporated machine learning and the strategy constantly learns and evolves itself to adapt new market conditions.
Can you elaborate on your institutional offering?
Our research shows a clear niche for professional IBs who would like to convert their businesses into White Labels or stand-alone brokerage houses. Some of them have been efficiently working as Marketing Agents for many years and have developed their own marketing & recruitment programs. At the same time many of them do not have their own technology, trading and risk management tools, web site, CRM, client and IB portals. The Make Capital technology team provides all the mentioned products either as a single package or such components as they require, which allows our partners to quickly start their new business with the best conditions for mutual long-term success & growth.
Existing brokers are mainly interested in Make Capital Liquidity that is unique in the institutional world and includes very tight spreads, above-average market depth and low commissions.
We have invested a lot into our technical infrastructure so we use our main datacentre in LD4, London as well as dedicated routing to several major datacentres around the globe. That gives us a huge advantage in trading markets as our connections are very fast and stable so execution delays or unexpected network connection problems have been all but eliminated.
How is the high saturation of the market impacting the business?
The market is rather saturated in Europe but there are growth opportunities in other areas, and we see Asia as the main opportunity for growth. We can see several major competitors in the region publish bigger and bigger numbers almost every month and I am completely sure that our pricing and reliability will attract customers & IB’s as we bring innovative competition to capture market in the next two years. We believe that our strong pricing and keen spreads will drive growth at the expense of other operators, and as the majority of our internal workflows are fully automated that the real winners will be the clients as our cost-savings are passed on.
Another interesting market that is on our radar are the Middle Eastern and GCC countries. It is really hard to embrace this region without a strong local presence but here we also expect our Hedge Fund to offer us a significant advantage. Large investors are always looking for new opportunities that would allow them to diversify their portfolios. The ‘word of mouth’ strategy appeared to be very effective in the region as all big players know each other.
What execution models do you provide to your clients?
Make Capital operates in true BookA, Non-Dealing-Desk (NDD) execution mode. In fact we are proud to say that we do not have a dealing team at all. The execution is fully automated via internal ECN system and we provide our clients with full statistics about execution speeds, slippage and partial fills. We also have Direct Market Access (DMA) channels that allow us to execute Futures-based trades with Exchanges and other Hedge Funds who act as market makers.
How about ProTrading - what is the idea behind the brokerage and who are you aiming at with this offering?
As we are experts in Money Management and prop-trading, we initially target other Money Managers and professional traders who already have successful strategies and their own client base. These traders clearly understand benefits of working with Make Capital as we provide them with really tight spreads, low commissions and great market depth. A typical contract in PRO is a Money Manager who controls between US$200,000 and US$500,000 in funds but who do not have yet their own White Label setup. At the same time we do not want to discourage smaller clients. They can see the same quality spreads and execution as professionals but their commissions can be slightly higher and will fully depend on the volume they generate.
Below is a screenshot from our trading platform, as you can see our spreads start from zero (choice spreads). The offer is very attractive to professional and money manager clients who execute big volumes and care about execution costs.
We believe it is time to introduce a new major player in the industry that will finally become a number one company in the trading world. Yes, this is our target and I will keep you updated about our progress.