Client Risk Scores

Trade Asset management assigns to its clients a personal risk score on a scale from 1-5 based on client’s responses to a suitability test. Trade is using the scoring of the test to access the following areas:

Risk tolerance levels and Investment objectives

You have decided to allocate a part of your investment portfolio in various Asset classes but based on your specific investment profile we have separated the risk levels you can tolerate within this allocation.

Remember that you are looking to add an extra uncorrelated return in your portfolio - that we call 'alpha' - when compared to your set benchmarks. Your basic investment profile can vary from Defensive to Speculative and risk levels apply on your portfolio based on expected annual returns, risk and drawdown.

Risk Level 1 2 3 4 5
Expected Annual Return Range -5% to +10% -10% to +15% -5% to +20% -20% to +25% -30% to +35%
Expected annualized risk
(Standard Deviation)
5% 10% 15% 20% 25%
Expected Max Drawdown -10% -15% -20% -25% -30%

Investment Horizon

Time required to meet investment return objective.

Financial capacity

Based on your total wealth situation and therefore ability to take a specific amount of investment risk.

Investors Risk Categories

  • 1 Defensive
  • 2 Moderate
  • 3 Growth
  • 4 Aggressive
  • 5+ Speculative
1
Defensive

Your profile is Defensive, most of your portfolio is allocated in an optimally diversified Fixed Income portfolio. Your expected returns will be slightly better than a savings account. Your max 10% allocation in alternative investments can handle a small negative return in order to target a 10% growth of this investment and add to your portfolios overall return.

2
Moderate

You have an overall risk profile but you can achieve up to 15% return of your investment portfolio when this is allocated in alternative investments. You are willing to allocate a higher part of your equity on investments other than Fixed Income and even accept a 15% drawdown of your alternative investments in order to achieve such a higher performance of your portfolio.

3
Growth

You have a Growth risk profile meaning that you will invest in weighted portfolios focused on growth multi-asset investments that typically offer both higher potential rewards and concurrent higher potential risk. You are willing to accept a higher Max DrawDown of your portfolio up to -20% in order to meet your return expectations.

4
Aggressive

Having an Aggressive risk profile you grasp a clear understanding of risk/return dynamics and thus are in a position to allocate the greater part of your portfolio in global equities and increase your alternative investments’ allocation up to 20%. You expect to achieve a yearly performance greater than 20% on that part of your portfolio but you understand that this might end up with a significant loss of -20%

5
Speculative

You are a Speculative profile investor and you duly comprehend the risk that you can tolerate and handle. You are looking for high yearly performance with higher volatility dynamics and as such your portfolio's allocations are headed towards riskier assets. Alternative investments allocation can reach up to 30% of your overall portfolio and associated risks can reach a -35% Max DrawDown on the value of the investment on alternative products.

Portfolio Risk Scores

Any new strategy or portfolio offered to Trade asset management clients goes through a rigorous due diligence process and is assigned a risk score. The portfolio Is then placed under continuous monitoring and the risk score can be adjusted monthly based on internal criteria, procedures and trading behavior.

The portfolio analysis and risk scoring is a combination of the following criteria

  • Trading positions results. We make sure all trading results are thoroughly analyzed and processed in order to ensure representative results on the corresponding portfolios of investors based on closed and open trades of any given strategy. The analysis consists of various metrics and activity indicators like maximum/minimum/average number of trades on different time horizons, per instrument distribution of trades, average holding periods of trading positions, maximum/minimum/average lot sizes, to name a few.

  • Risk/Return statistics. The risk/return analysis of our strategies is performed on a very wide range of available risk and performance indicators and statistical properties. Starting from Sharpe ratio analysis on an inception and rolling basis and moving to other similar risk/return ratios like Sortino, Sterling, Calmar. Our internal platforms measure annualized rolling volatilities across time horizons, Max DrawDown Historical and Current percentages, market risk correlations as well as distribution characteristics of Returns (Max/Min/Average on various frequencies) and VAMI dynamics. We also apply the well documented SRRI risk metric used by UCITS and Hedge Funds globally in order to categorise our strategies based on the corresponding 1-7 range.

  • Trading strategy rules. Apart from the activity and risk/return metrics discussed above, we pay the utmost attention to the actual model behind the strategy, the wholistic concept of the trading rules and the association to real markets dynamics.
    We are offering strategies that embed a “market edge” that pays in the long-term. We have various strategies in our arsenal covering all risk profiles and return appetite however we make sure each one of them and their optimal allocation is well structured and has a proven record and model behind. Nevertheless, as a safety measure against extreme market conditions, we apply Risk Management StopLoss mechanisms for all our strategies at specific levels, so that we ensure at our best ability that no investor surpasses the maximum loss that has been agreed and expected per portfolio.

Client Risk Scores explained

Client Risk score >= Portfolio risk score

Clients can only invest in portfolio and strategies that have a risk score lower, or at least equal to their own risk score that was assigned to each client based on the suitability test.