033 - Rob Carver - The Comprehensive Guide to a Diversified Futures Strategy
Feb 19, 2025
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Rob Carver, a seasoned trader and author of systematic trading books, shares his expertise on crafting a diversified futures portfolio. He delves into crucial strategies like market selection, dynamic optimization, and the significance of capital allocation. Carver also discusses innovative methods for diversifying with limited funds, the evolution of trading practices, and the importance of volatility adjustments for effective trading. His insights on balancing risk and managing costs provide a treasure trove for traders eager to master futures.
Rob Carver's strategy emphasizes efficient trading across multiple instruments, allowing effective trading with limited capital by analyzing diversified models.
His systematic approach combines top-down portfolio management with dynamic optimization, enhancing performance through real-time adjustments to market conditions.
The importance of execution strategy is highlighted, particularly using passive rolling to minimize costs and align trades with optimal market liquidity.
Carver advocates for a careful approach to machine learning in trading, favoring simpler models while recognizing potential uses in execution strategies.
Deep dives
Capital Requirements for Trading Strategies
Trading in multiple instruments necessitates varying capital, but substantial capital is not mandatory if one adopts an efficient trading approach. The speaker emphasizes that by analyzing several models within each instrument, he combines forecasts derived from these models to inform his trading decisions. This process can result in a weighted average across numerous strategies, ultimately leading to a singular position that avoids the need for capital proportional to the number of models. Thus, trading remains effective even with limited capital, as the number of instruments and the overall strategy take precedence.
Personal Trading Background
The speaker's trading journey began in 2002 when he first traded futures contracts while working for an investment bank. His career progressed through roles in hedge funds, leading to significant experiences with systematic trading approaches. Although the speaker now manages his own trading portfolio, he has authored several books on trading strategies to share his knowledge and findings within the industry. This background sets the stage for his insights into quantitative trading and the efficacy of systematic methodologies.
Dynamic Portfolio Management
The speaker adopts a top-down approach to manage multiple strategies across three primary portfolios: futures trading, ETF investments, and individual UK shares. Within the futures trading portfolio, he utilizes a selection of strategies focusing on divergent and convergent methods, incorporating multiple models and variations. This dynamic adjustment allows for near real-time management of positions, ensuring the strategy adapts to the prevailing market conditions and capitalizes on diversification opportunities. The comprehensive structure of the portfolios facilitates systematic optimization, thereby enhancing overall performance.
Execution Strategies and Risk Management
Execution strategy plays a vital role in effective trading, particularly with respect to managing order placement across global markets. The speaker employs a method called passive rolling, which allows for the seamless transition of positions based on market liquidity without incurring excessive costs. He retains strict parameters for trade execution timing, aligning orders to optimal liquidity periods while monitoring market conditions. This approach minimizes slippage and ensures that trading maintains a consistent level of performance aligned with the forecasts generated from his models.
Comprehensive Approach to Futures Selection
Selecting appropriate futures contracts is crucial for maintaining a diversified and profitable trading portfolio. The speaker employs a systematic method for determining which contracts to include based on various factors, such as liquidity, volatility, and transaction costs. By focusing on maximizing diversification while minimizing risk, he can effectively construct a portfolio that captures potential market opportunities. The dynamic optimization process allows for regular updates to the list of instruments, ensuring they align with performance expectations and underlying market conditions.
Challenges and Insights in Futures Trading
Navigating the complex landscape of futures trading presents unique challenges, including variations in market behavior and liquidity. The speaker discusses specific nuances associated with different exchanges and contract types, emphasizing the importance of understanding these dynamics for successful trading. He highlights the need for a robust trading plan that accounts for volatility and liquidity variations, particularly when dealing with low volatility instruments. This awareness enables traders to adjust their strategies dynamically while still maintaining a focus on long-term performance.
Machine Learning and Artificial Intelligence in Trading
The speaker expresses a cautious yet curious stance towards utilizing machine learning and AI in trading. While recognizing the potential benefits of these technologies, he emphasizes the importance of comprehending their underlying mechanics to avoid pitfalls related to overfitting and misapplication. His focus tends to remain on simpler statistical models that offer tractable insights, allowing for a deeper understanding of performance metrics. The speaker suggests that machine learning may play a more effective role in execution strategies rather than direct trading models.
The A-Z of building a systematic futures portfolio
In this episode, seasoned trader Rob Carver shared his nuanced approach to building and managing a diversified futures portfolio—a methodology that appeals to advanced, technical traders, while we also covered off some of the 'basics' of futures trading, such as rolling, back-adjusting, and so on. I did my best to break down the key elements of his strategy, from market selection to dynamic optimization and continuous trading. A couple of interesting things came up, there's a lot of detail in here, and luckily you can go to his blog and books for all the technical detail.
For the long-term futures trader with a smaller account, this is essential listening. How much diversification across markets and models is enough? How can we capture the benefits of this diversification with a limited account size? Rob has innovative approaches to both market diversification and model diversification to generate a highly capital efficient approach.
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