MarketEthos Capital LLC

ME Plus 3X

MarketEthos Capital employs a multi-strategy approach in managing futures accounts in order to maximize return per unit risk. MarketEthos Capital applies multiple, non-correlated, positive expectation strategies to achieve a smoother portfolio equity curve. Currently, these strategies include statistical arbitrage and objective or mechanical technical trades. The first strategy employed by MarketEthos Capital is a statistical arbitrage pairs trading system. This strategy involves trades that match long and short positions in correlated securities, such as a yield curve spread involving different maturities of U.S. Treasury futures. With its statistical arbitrage systems, MarketEthos Capital seeks to profit from fluctuations within the spread between these correlated securities as opposed to the direction of either or both of the individual contracts. Its systems incorporate volatility-based hedge ratios so profitability is not correlated with, or dependent upon, the performance of the markets being traded. The non-correlation of MarketEthos Capital's trading program makes it an attractive diversifying component for investment portfolios that already include fixed income and/or equity market exposure. The second strategy used to manage customer accounts is a short-term countertrend system applied to broad-based equity index futures in the United States and Europe. Once an established trend is in place, the system will place limit orders to enter a countertrend position at what is often an overextended price zone. If the limit order is filled and a position is entered, a stop order is placed 6% away from the entry fill price. A limit order is also placed to exit the position. If either exit order is filled, the other one is cancelled. This system has an average holding time of 1.5 days and is also not correlated with the performance of the markets it trades. MarketEthos Capital makes extensive use of customized software in various aspects of its trading system research and execution. Current and potential strategies are simulated on a stand-alone basis and in portfolios combined with other strategies to quantify profitability and risk. MarketEthos Capital also uses these simulations to identify robust parameter sets for each strategy. Trades may be placed manually by a MarketEthos Capital trader or automatically by Rikou Systems trading software. Trades placed by the software are recorded in a database along with indicators present at the time of order entry. This database is then analyzed to compare actual trading results with simulated results for the same time period in order to verify performance and adjust slippage estimates for similar execution scenarios in that market. Also, the execution data allows testing of the recorded indicators to determine if they were useful in identifying advantageous trades. Correlation The pairs trading and index countertrend strategies are not correlated with each other, the performance of the markets they trade, or the performance of other managers or categories. Both systems rely on proprietary, quantitative models for their entry and exit levels, are equally likely to trade long or short positions, and are out of the market at times. This non-correlated performance ensures that adding the MarketEthos Capital trading program to a portfolio will add diversification and increase expected return per unit risk, regardless of the existing portfolio composition.