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July 31, 2000

Hedge Fund Utopia

By Staff Reports

Technology has made life easier for hedge funds.

The cost of technology, once the province of the giants, is tumbling, making it affordable for smaller funds. But more important, affordable technology is allowing hedge funds to conduct the most complex set of securities transactions with relative simplicity.

Joseph Rosen, a managing director of ETC, a New York-based firm that provides custom software application for investment firms, advises funds to avoid off-the-shelf software. "That makes eminent sense," Rosen said. "If you buy from a vendor what kind of competitive edge are you getting?"

Technology is pervasive in the hedge fund industry. In the currency markets, for example, at least 20 active online services are available. One of the latest is GAIN Capital in Warren, N.J., which likens itself to Knight Trading Group in Jersey City.

"Our business model is to provide expert market making to the point where we aggregate a lot of the small deals," said Glenn Stevens, head of sales and trading at GAIN.

The firm, which does not charge commissions, is offering 50 to 1 leverage. Minimum account size is $5,000 and minimum trade size is $100,000. GAIN is trading in four major currencies: U.S. dollar, the euro, the yen and the British pound.

"By design, we are not going to be holding large positions," Stevens said. "Ultimately we will tap into our liquidity sources to mitigate the risk when our positions get to a point where we are not comfortable with them."

Stevens has noticed asset managers paying more attention to currency moves. "They are actually starting to hedge them more," he said.