FAQ

WHAT IS A HEDGE FUND?

As you consider investing with Wisemann, it is important that you understand the key differences between a hedge fund and the more common mutual fund.

  MUTUAL FUND HEDGE FUND

1) Goal

Relative Return

Mutual Funds are measured on relative performance. Their performance is compared to a relevant index such as the S&P 500 Index or to other Mutual Funds in their same sector.

Absolute Return

Hedge Funds, on the other hand, are expected to deliver absolute returns by attempting to make profits under all circumstances, even when the relative indices are down.

2) Strategies

Highly Restricted

Mutual Funds are highly regulated, restricting the use of short selling and derivatives. These regulations serve as "handcuffs", making it more difficult to outperform the market or to protect the assets of the Mutual Fund in a downturn.

Unrestricted

Hedge Funds, on the other hand, are unregulated and therefore unrestricted. They are allowed to short sell and are able to use many other strategies designed to accelerate performance or reduce volatility.

3) Performance

Market-Dependent

The future performance of Mutual Funds is dependent on the direction of the equity markets. It can be compared to putting a cork on the surface of an ocean - the cork will go up and down with the waves.

Manager-Dependent

The future performance of many Hedge Fund strategies tends to be highly predictable and not dependent on the direction of the equity markets.

It can be compared to a submarine traveling in an almost straight line below the surface, not impacted by the effect of the waves!

4) Liquidity

Daily liquidity

Limitations on investment and redemption. Some very successful funds require that capital be committed for 2-3 years. Daily liquidity does not exist in the hedge fund universe.

5) Business Relationship

Agent-Client Relationship

Mutual Fund managers typically do not have personal assets at all invested in the fund that they are promoting.

The manager is merely an agent for the client.

Co-Investor Relationship

Hedge Fund managers often invest a significant portion of their personal wealth in the funds they manage.

Manager and client co-invest as partners. Hence, the interests of the manager and his investors are completely aligned.

6) Fees

Asset-Based Only

Mutual funds generally remunerate managers based on a percent of assets under management.

As such, mutual fund businesses tend to be more focused on gathering assets than on managing assets.

Asset-Based and Performance-Based

The hedge fund manager’s compensation is directly related to his performance. Again, this helps to align the managers’ and investors’ interests. Therefore, the manager has a greater incentive to focus on managing assets rather than gathering assets.

Management Fee ranges from 1%-2%. Performance Fee (on High Water Mark) ranges from 20%-50%.

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WHY FOREX?

Hedge funds invest in a variety of futures markets including currencies, interest rates, global stock indices, grains, softs, metals and energies.

Wisemann specializes in the Spot Forex market for the many benefits and advantages that it has over stocks and other futures markets.

Here are just a few of the major advantages:

ADVANTAGE FOREX STOCKS

1) High Liquidity

USD4 trillion a day.

24-hour global market, with instant filling of market orders.

NYSE: USD1.65 trillion a month.

Investors frequently "caught" due to market illiquidity, trading suspension, price gap, etc.

2) No Market Manipulation

The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.

Susceptible to large funds and syndicates cornering the market and manipulating prices.

3) Low Complexity

7 majors, and a dozen cross pairs.

NYSE: 4,000+ stocks

NASDAQ: 3,000+ stocks

4) Short Selling Allowed

No restriction on short selling. Profit opportunities exist regardless of whether the market is moving up or down.

Short selling is either restricted or not allowed.

5) Use of Leverage Allowed

100:1 or more.

(Warning: leverage can benefit or harm you. Therefore, use leverage judiciously and always abide by money management rules.)

Equities: 1:1 or 2:1

Futures: 10:1 – 20:1

6) Less Risky

Unlike stocks, major currencies will not likely become worthless overnight.

Guaranteed Limited Risk: You can only lose up to what is in your trading account.

Companies including blue chips have been de-listed and gone bankrupt overnight.

In the futures market, your position may be liquidated at a loss bigger than what you had in your account.

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WHAT IS LIMITED POWER OF ATTORNEY (LPOA) AGREEMENT?

It is an authorization that you give to Wisemann, allowing us to manage your account (to trade your account). This authorization is limited only to trading. Transactions such as withdrawals, change of beneficiary and other actions are still available only to the account proprietor – you. The LPOA also defines the management fee and performance fee and the conditions according to which we are paid.

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WHAT IS A SEGREGATED ACCOUNT?

Segregated accounts are dedicated client accounts which allow keeping client funds separated (segregated) from the brokerage company funds. By law, funds can only be transferred from the trading account to a bank account under the name of the investor, and vice versa.

The brokerage company is not allowed to transfer your funds to another account for whatever purpose.

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IS FXCM AUSTRALIA A LICENSED BROKERAGE COMPANY?

Yes. FXCM Australia Limited is the holder of an Australian Financial Services License (number 309763) which was issued by the Australian Securities and Investments Commission (ASIC) in Australia.

FXCM has companies registered and regulated by some of most respected regulatory bodies in the world, such as the USA, UK, France, Hong Kong and Australia.

FXCM treats retail customer funds with the utmost security, housed in segregated accounts across top global banks. 

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WHAT IS HIGH WATER MARK?

The implementation of a 'high water mark' means that Wisemann will only receive a Performance Fee when the value of a client's investment is greater than its previous greatest value. Should the value of the investment subsequently drop in value, then Wisemann will only receive a Performance Fee again once the value of the investment has once again reached its greatest value.

Below is an illustration on how this works:

January 1, 2009 - Client invests $100,000

February 1, 2009 - Investment has increased to $105,000
Profit: $5,000
Performance Fee: $1,500 (30% of $5,000)
Closing balance: $103,500

March 1, 2009 - Investment has decreased to $101,000
Loss: $2,500
Performance Fee: $0
Closing balance: $101,000

April 1, 2009 - Investment has increased to $102,000
Profit: $1,000
Performance Fee: $0
NOTE: No Performance Fee is charged because the 'high water mark' of $103,500 (achieved in February) has not been surpassed.
Closing balance: $102,000

May 1, 2009 - Investment has increased to $107,000
Profit: $5,000
Performance Fee: $1,050 (30% of $3,500, not $5,000)
NOTE: The performance fee is only charged on the profit in excess of the 'high water mark', i.e. $103,500.
Closing balance: $105,950 (this becomes the new 'high water mark')

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WHAT IS "REVERSE COMPOUNDING"?

Most investors are familiar with the "Magic of Compounding Interest", but what they fail to realize is that it works in reverse as well. This "Damaging Power of Reverse Compounding" graph (below) shows how much an investor must gain back at various levels of portfolio losses. With a 10% loss, an investor must gain 12% to be back to even. With a 20% loss, the gain must be more than two times that at 25%. As losses become more extreme, so does the reverse compounding. With a 60% loss, an investor needs to make back 150% to break even and with an 80% loss, they have to gain 400%!

Reverse Compounding

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