Systematic Currency Trading

Jolie G de Miranda

Systematic currency trading employs the use of a deterministic set of rules to make currency trading decisions, along with the strict application of these rules. Such a style of trading is generally best implemented by a computer or other automaton. Due to its multi-disciplinary nature, the topic of this chapter could easily fill an entire book or even several. Therefore, due to space limitations, we have had to make a few choices with respect to the direction of the chapter, and decided to focus on examining the motivation behind systematic trading (versus discretionary) and providing a high-level overview of how such a system can be designed. The hope is that this will provide readers with a basic appreciation of the concepts involved, and assist them in determining whether investing in a systematic currency manager is suitable for them.

The chapter is divided as follows. The next section compares systematic versus discretionary trading styles both from a philosophical and empirical perspective, and addresses some common misconceptions about systematic trading. The second section provides an overview of the building blocks that make up the systematic trading process, before each