Forex Trading for the Banks: An Interview with Kazunari (Kaz) Ueno

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Takeaway: As a portfolio manager, you do not always have the freedom to wait, but as a retail trader, you’re your own boss.

Forex Trading for the Banks: An Interview with Kazunari (Kaz) Ueno
Kaz Ueno
Going strictly by the numbers, the number of individual traders in the forex market far outweigh the proprietary traders and portfolio managers that work for investment banks and trade on behalf of clients. Although they are badly outnumbered in the market, bank-based traders handle orders and portfolios on a scale that most retail traders can only dream about. To find out more about bank-based trading, we caught up with Kazunari (Kaz) Ueno, an experienced forex trader and fixed income portfolio manager.

How Did You Get Involved With Forex Professionally?

The first time I was exposed to forex was at the Societe Generale Tokyo branch when I worked for their Funds and Forex Department. I performed back-office tasks for money market and forex transactions. It was a pretty basic job. It was not my responsibility to watch markets or to trade, but I had many opportunities to watch, learn and think about interest rates and the forex market. That was my first time to see what the market was like and to gain an understanding of how money was moving around the world on a daily basis. While I was with Societe Generale, I developed my vision for my future career.

How Did You Become a Portfolio Manager?

After a year and a half at Societe Generale, I went overseas to Boston to get my MBA. This opened up my career path to more active roles, and I became a portfolio manager at the Japanese fixed income section of Tokai Bank. When I returned to Japan after graduating from business school, I had several job offers, but only Tokai Bank wanted to hire me as portfolio manager. At Tokai Bank, I was responsible for analyzing economic trends and trying to forecast future rates. Based on my analysis of the interest rate environment, I would optimize the allocation of a $17 billion portfolio amongst government bonds, prefectural bonds, municipal bonds, corporate bonds, debentures and so on. The main goal was to keep the risk profile low while getting the best possible return from the debt investments.

After three years in Japanese fixed income, I transferred to an investment management arm of Tokai Bank where I managed mutual funds with a global debt focus. The funds amounted to $500 million in total. I handled both the debt investment and the forex exposure for these funds. Instead of hedging the portfolio solely against changes in interest rates, I needed to consider the exchange rates of the currencies involved. I spent another three years getting comfortable with juggling forex and debt investment before Tokai Bank sent me for my overseas experience. Many Japanese financial institutions send portfolio managers for international experience. I was placed at Morgan Grenfell, London and put in charge of a $1 billion pension fund portfolio.

Did You Notice a Difference In Trading Styles Between Tokyo and London?

The offices in London have professionals from different countries, including Germany, Italy, the U.S., so there was a range of styles. Overall, I think the trades were more aggressive than you would see at a bank in Japan. When I first got involved in asset allocation and currency allocation there, I had trouble sleeping at night because of the huge personal responsibility that comes with running a portfolio that large. The other portfolio managers and traders didn’t seem as concerned as I was and they were usually sitting on much riskier positions.

How Did Your Overseas Experience Change Your Trading?

In my first two years, I focused a lot on the process I was using to change asset allocation and currency allocation. For the bond and the forex side, I had one-month, three-month, six-month and one-year strategies. This essentially means that you need to forecast market trends as accurately as possible. To do so, I conducted thorough research and analysis of factors that could affect markets in the short and long term, weighting them by probability. I changed the asset allocation and currency allocation according to the results of my ongoing analysis. By dedicating myself to the process, I was able to outperform other managers in the long-run and do so with much less overall risk exposure. I returned to Tokyo a better portfolio manager because of it.

What Kind of Strategies Did You Develop ?

My typical approach was to develop a bond investment strategy and a currency strategy separately. If I forecasted U.S. treasury bonds rising compared to Canadian bonds, I would go overweight on U.S. treasuries and underweight on Canadian bonds. But at the same time if I forecasted the Canadian dollar appreciating against the U.S. dollar, then I would hedge into the Canadian dollar out of the U.S. dollar. This method is designed to make gains from not only market allocation but currency allocation as well. The performance of international investments is attributed largely to currency allocation. By working both angles, you increase your chances to beat the index or benchmark you’re using.

What Were the Major Challenges You Faced as a Portfolio Manager?

The big challenge in managing a portfolio is properly implementing your strategy. If you can keep your portfolio risk exposures within an appropriate level based on your strategy, then it becomes relatively easy to outperform on a longer time frame. To meet this challenge you need to put the work into building a strategy that you are confident in, continually refining it according to your research and analysis. A lot of portfolio managers get burnt by focusing too much on gain (or loss) in the short-term. More precisely, many portfolio managers fear short-term market fluctuations. They are not able to fully implement their strategies as planned or they abandon the strategy too quickly. As a consequence, they miss out on opportunities to outperform.

What Was the Most Important Lesson You Learned as a Portfolio Manager?

Process is more important than short-term gain . You perform thorough research and analysis around the factors that can affect markets, develop your investment strategy, and decisively implement your investment strategy. If you are following the right process, then performance will follow. This lesson has served me well throughout my career, whether we are talking stocks, bonds or forex.

Are There Any Currencies or Indicators You Prefer?

I usually use Fibonacci ratios and retracements to identify support and resistance. I also use Ichimoku Kinko Hyo charts sometimes. As far as currencies are concerned, I have found the Canadian dollar to be very interesting. When I was a portfolio manager, I quite often overweighted the Canadian dollar and successfully beat the benchmark. I traded the loonie almost every day when I worked for Mizuho in Canada. The Canadian dollar is heavily influenced by other financial instruments like stocks and resources, as well as the normal things like interest rates and GDP. The Canadian dollar experiences periods where speculation drives most of the trading and it fluctuates widely. I have found it a lot of fun to read psychological subtleties of market participants. I haven’t had any unpleasant experiences trading the Canadian dollar. Before the euro convergence, I preferred the Italian lira, Spanish peseta and Dutch guilder over the German mark and the French franc. The former provided more opportunities to beat the index than the latter. There are certainly a variety of different views, but it may be harder to outperform the market now than it was before the eurozone was established.

You Trade Forex For Your Own Account As Well. How Is It Different from Professional Portfolio Management?

I enjoy trading with my own money, but it is very different from managing a portfolio. The main difference is that I have a lot more freedom in how much exposure I think is safe for a particular trade. There is also no time constraint. You can wait for market trends to emerge. This is the greatest freedom. Even if a certain currency is oversold or overbought and you correctly forecast its fair value, it is very hard to tell when it will turn around and reach the fair level. As a portfolio manager, you do not always have the freedom to wait, but as a retail trader, you’re your own boss. In my personal trading, I put a greater emphasis on technicals and market psychology, although I still consider fundamentals to be the ultimate driver over the long-term.

Thank you Kaz. You can find out more or contact Kaz through his Linkedin Account.

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About Andrew Beattie
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Andrew Beattie has spent most of his career writing, editing and managing financial content as well as more general web site material in all its many forms. He is especially interested in the future of search and the application of analytics to the business world. He has been a long-time contributor to and is currently venturing forth on ForexDictionary.
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