Category Archives: Trading

FX Lessons from Larry Hite

Larry Hite was one of the most successful derivatives traders of his day and during his time with Mint Investment Management Company in the 1980- 90s, he helped to the fund the biggest in the world and made it the very first business in derivatives, to have of in excess $1 billion in assets under management.

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Market Wizards

The famous interviews with traders conducted by Jack D. Schwager in Market Wizards included Hite, who discusses how he got started in commodities trading and his trading strategy.

Hite believes that successful trading is simply based on calculating and trading the odds and bases his strategy not on getting the highest return – but on getting the best return, in terms of keeping downside volatility to a minimum.

Trading Strategy

Hite, compares trading to playing poker. Profitable investing is really based on betting the odds, and if you can estimate the odds of a specific trade or investment, then you can establish if the price is to high or to low.

Similar to poker, favorable odds do not guarantee any individual trade will be successful but as any good poker player knows, if you keep playing the odds with tight money management, you can make a lot of profit.

Larry Hite famously said:

“We approach markets backwards. The first thing we ask is not what can we make, but how much can we lose. We play a defensive game.”

His goal was to achieve the best returns while employing tight risk control, Hite stresses three key trading rules.

First, he advocates never risking more than one percent of total capital on one single trade, no matter how good the trade looks.

His second rule is to always follow trends and never deviate from your methods or systems and it’s true, if you can’t trade a system with discipline, you don’t have a system This view is based on trading the odds and how the great poker players make money.

Losing money in the short doesn’t matter, because if you continue to play the odds correctly, you will win but you must stay on course.

You need to have the conviction and courage to cut losses and hold big trends, in the face of open equity dips and at the end of the day – it’s the long-term profit that counts and what happens in the short term is irrelevant.

Hite’s last rule is to diversify across several different areas and he traded in multiple markets across the world, diversifying his portfolio into several different asset classes which were not correlated.

The Mint Fund

“There are two basic rules about winning in trading and life. One, if you don’t bet you can’t win. Two, if you lose all of your chips you can’t bet.”

The Mint Guaranteed Fund – a Series A fund – proved to become one of the best publicly traded commodity funds, in terms of performance to draw down.

Hite used diversification as a key tool for cutting risk and never overexposed the fund in any one area.

The fund achieved an annual return of over 30% before fees over a 13-year period under his guidance and in term of the low downside volatility, this is a truly outstanding performance.

In terms of the Mint Fund Larry made the point that the saying that they lived by was:

“It is incredible how rich you can get by not being perfect.”

He makes the point that in trading the Mint Fund, the object was not to find the optimum method but the hardiest system which goes with the overall view of Mint that risk control is the key to making long term gains.

Summary

In 1994, Larry Hite retired as the hands-on fund manager at Mint. Since his retirement, he has held the position of managing director of Hite Capital LLC and in has performance in terms of profits to downside volatility compares with any other trader, making him one of the most important and influential traders of recent times.