AlphaFinancialGroup.com Review Is Alpha Financial Group A Legit Broker

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Alfa-Forex Review

Alfa-Forex general information

Russia

Founded in: 2020 year
Headquarters:
Minimum Deposit: 0 $
Website: www.alfaforex.ru
Website languages: Russian
Execution model: NDD
Deposit currency: RUB
Support languages: Russian
Regulated by: CBR (Russia)
Mobile trading: iOS, Android
Types of offered accounts:
Affiliate program: Yes
  • Bank broker
  • Web-based platform

Alfa-Forex Forex broker description

The Alfa-Forex Company dashed the Forex market in 2003. This broker is a member of Alfa Bank Group. The proven reputation, favorable terms and the highest level of customer service enrich the list of this broker’s competitive advantages. The Alfa-Forex broker is mainly oriented at the clientele from Euro Union, Russia, and the former Soviet states. As various expert periodicals and agencies state, the company is a titleholder of a prestigious awards’ bunch, such as The Broker of the Year 2020, The Best CFD Broker 2020, and the Best Forex Bank Broker 2020. Pay attention to the Alfa-Forex review.

The Alfa-Forex customers get a possibility to use a wide range of different trading tools for business, including popular currency pairs, precious metals, oil, stocks, crude oil and other instruments. The users may pick the optimal variant for carrying out the trade that allows extracting the maximal profits. Besides, you may start CFD trading if you wish. We recommend to study in detail Alfa-Forex analysis.

The thing that attracts the beginning traders to the Alfa-Forex most of all is a zero minimum deposit. Novice traders may take the advantage of the huge amount of educational articles posted in the in-house website. The beginners may get interested in the articles subjected to fundamental and technical analysis conducting, various webinars and events, organized on a regular basis. Be sure to get detailed information about the Alfa-Forex brokerage company events on this page. If you wish to participate actively in the life of a broker to go Alfa-Forex webinars.

The Alfa-Forex broker tends to offer its customers the widest range of market analytics. The clients can view the latest economic news and forecasts from the respectable and experienced technical strategists, to study the industry-subjected articles, to look through the event calendar and take the advantage of many other popular and efficient services. Actual Alfa-Forex news you can read here.

This broker offers a possibility to carry out trading from different platforms because the Alfa-Forex supports ZULUTRADE that allows copying the best traders’ deals on their network, METATRADER 5, and METATRADER 4. The mobile trading platforms deserve the special attention due to a possibility to trade on the Forex market via a smartphone, tablet, and other mobile devices. The broker provides the 24/5 high-quality customer service.

PAMM-accounts seems to be an interesting and attractive service for the investors. The Alfa-Forex Company’s staff includes a number of professional managers. The efficiency level of their activity is reflected in the appropriate rating. You will definitely find the reliable specialist, targeted on your funds boosting, thanks for a rich variety of proposals.

We should also mark out the perfect quality and the speed of each order execution, low spreads, bank quotes, market swaps, high liquidity even during the relevant economic newscast releases. It is worthwhile adding that the Alfa-Forex broker supports a wide spectrum of payment options for depositing and withdrawing funds (credit cards, bank transfers, Yandex.Money, Webmoney, QIWI, etc.).

The independent testimonials about the brokerage company Alfa-Forex service are published in greater details in this section of our portal. We are pleased to present the recommendations from real traders. Unfortunately, this broker rarely offers its customers the additional promotions what makes the beginning traders stay away from the company. Discover current Alfa-Forex promotions.

What is alpha?

Alpha in finance

Alpha is a measurement of the performance of an investment as compared to an index such as the S&P 500. It is considered to be an investment’s active return and is used to understand how an investment is performing as compared to the market as a whole.

An alpha number can be negative or positive, and the baseline value is zero. For example, if an investment has an alpha value of two, this means that it has outperformed the comparison market index or benchmark by two percent. By contrast, if an investment has a negative value of one, this means that it underperformed the market by -1 percent. Alpha can be used to determine how well a portfolio manager is actually performing for you.

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How is alpha defined, and how can you measure alpha?

In investing, the definition of alpha is the excess or abnormal rate of return of an investment.

A simple alpha calculation can be completed by subtracting the total return of an investment from a benchmark that is comparable in the same asset class. However, this type of basic calculation can only be used to compare the performance of an investment to a benchmark in the same category of assets. More complex measurements of alpha, such as Jensen’s alpha, also take into account risk-adjusted measures and the Capital Asset Pricing Model (CAPM) theory by using the beta and the free risk rate.

What is alpha in investing?

When you use alpha in investing, it provides you with a way in which you can see how a fund performs as compared to its benchmark over time. A fund’s excess return as compared to the benchmark is a positive alpha. When you are investing, you always want to have a positive alpha. If you instead have a negative number, the fund that you have chosen is not performing as well as the benchmark.

Investment alpha helps you to set and meet a goal of outperforming the market. When you use investment alpha, you can make adjustments to your portfolio as needed. If you do not pay attention to alpha, beta, and correlations when you are investing, your portfolio may not earn as great of returns as it otherwise might.

Calculation of alpha

Alpha is also known as the Jensen index after its creator, Michael Jensen. Jensen created Jensen’s alpha in the 1970s to measure the highest possible return for the least amount of risk. It is used to determine what the required excess return of a portfolio, stock, or security is.

When you want to calculate the investment alpha, it is important that you choose a relevant benchmark. While many investors choose the S&P 500 as the go-to benchmark to use, it may not be the most appropriate for some portfolios.

For example, if a portfolio is invested in the transportation sector, the S&P 500 may not be a good choice for the benchmark. Instead, an index such as the Dow Jones Transportation Average might be a more relevant option. Comparing different types of portfolios that contain different asset classes with their alpha ratios may also provide you with misleading and inaccurate numbers.

Volatility and risk

Volatility and risk are two important terms within finance, and they should not be confused. Some people make the mistake of equating the two terms or using them interchangeably.

The risk of an investment refers to the potential to permanently lose money. By contrast, the volatility of an investment refers to the fluctuations of the price that can occur and how rapidly those changes happen.

When prices fluctuate, it doesn’t necessarily mean that there is a risk of permanently losing money. Volatility instead simply refers to the changes that happen and does not refer to the risk of permanent loss.

What is beta vs. what is alpha?

The investment beta or ОІ refers to a measurement of the volatility of a portfolio, stock, or security as compared to a benchmark or an entire market. When ОІ is calculated, it is the tendency of the returns of a security or stock to respond to price fluctuations in the market.

It is used in the CAPM, which is used to calculate the expected return of an investment asset. To calculate ОІ, the most common formula used is as follows:

Difference between О± and ОІ

The meaning of alpha is a measure of an investment’s active return as compared to a relevant market or benchmark. An investment’s excess return as compared to the benchmark’s return is its investment alpha.

The investment beta is a measure of the systematic volatility of the returns in relation to price fluctuations. Both О± and ОІ are important in calculating the actual performance of a portfolio, security or stock, and can tell you how well a portfolio manager or robo-advisor is performing when they are used in an appropriate formula using a relevant benchmark or market index.

Application of alpha and the correct approach to alpha

To correctly apply investment alpha with your portfolio, it is important for you to understand what is alpha and how to calculate it correctly. The meaning of alpha in terms of finance is the abnormal rate of return that your portfolio earns as compared to a relevant benchmark or market index.

If you choose a benchmark or index that represents a different asset class, the numbers that you calculate will be meaningless, telling you little about the performance of your portfolio and how it should be performing as compared to how it actually is. Understanding alpha can give you an edge so that you might consistently outperform the market.

Jensen’s alpha

Jensen’s alpha refers to the measurement index that was created in the 1970s. This measurement index is based on the idea that riskier investments should provide higher returns than lower-risk investments.

When investments provide higher returns than the expected returns, the investors who hold them are said to be outperforming the market. Consequently, the goal of most investors who understand the concept of alpha seeks to attain a positive alpha for their investments and portfolios.

Challenges of using alpha

Using alpha presents several challenges for investors. It can be difficult to calculate for some people. People who try to compare portfolios of different types of assets will derive alpha numbers that are misleading.

While using a basic calculation of alpha can give a rough comparison of a portfolio against a benchmark of a similar asset category, it may not take into account the effects of volatility and risk of more advanced formulas. Investors might gain more of an edge relying on a robo-advisor that calculates alpha automatically and readjusts the investments in the portfolio accordingly.

Efficient market hypothesis

The efficient market hypothesis states that the market is accurately valued because all of the information has been priced in. If this hypothesis is true, then it would mean that active profile managers do not have an edge over other investors.

While people might question whether investing and portfolio management is more a matter of luck or skill, some actively traded funds struggle.

Capital asset pricing model

The capital asset pricing model is an equilibrium model that can be used to determine what returns an investor needs to realize in order to balance out a particular degree of risk. It takes into account both the alpha and the ОІ measurements, using a formula that can be expressed as follows:

In this formula, the coefficients represent the following measurements:

R is the return of the portfolio

ОІ is the portfolio’s systemic risk

Rf is the risk-free rate of return

Rm is the market return

The formula can be rearranged as follows to solve for alpha:

When the formula is rearranged to solve for alpha, you can then determine how much an investment outperformed or underperformed the selected market or benchmark.

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Alpha

What is Alpha

“Alpha” (the Greek letter α) is a term used in investing to describe a strategy’s ability to beat the market, or it’s “edge.” Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole. Alpha is often used in conjunction with beta (the Greek letter β) , which measures the broad market’s overall volatility or risk, known as systematic market risk.

Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over some period. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole. The excess return of an investment relative to the return of a benchmark index is the investment’s alpha. Alpha may be positive or negative and is the result of active investing. Beta, on the other hand, can be earned through passive index investing.

Alpha is commonly used to rank active mutual funds as well as all other types of investments. It is often represented as a single number (like +3.0 or -5.0), and this typically refers to a percentage measuring how the portfolio or fund performed compared to the referenced benchmark index (i.e., 3% better or 5% worse).

Deeper analysis of alpha may also include “Jensen’s alpha.” Jensen’s alpha takes into consideration the capital asset pricing model (CAPM) market theory and includes a risk-adjusted component in its calculation. Beta (or the beta coefficient) is used in the CAPM, which calculates the expected return of an asset based on its own particular beta and the expected market returns. Alpha and beta are used together by investment managers to calculate, compare, and analyze returns.

Trading With Alpha

BREAKING DOWN Alpha

Alpha is one of five popular technical risk ratios. The others are beta, standard deviation, R-squared and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory (MPT). All of these indicators are intended to help investors determine the risk-return profile of an investment.

Active portfolio managers seek to generate alpha in diversified portfolios, with diversification intended to eliminate unsystematic risk. Because alpha represents the performance of a portfolio relative to a benchmark, it is often considered to represent the value that a portfolio manager adds to or subtracts from a fund’s return. In other words, alpha is the return on an investment that is not a result of general movement in the greater market. As such, an alpha of zero would indicate that the portfolio or fund is tracking perfectly with the benchmark index and that the manager has not added or lost any additional value compared to the broad market.

The concept of alpha became more popular with the advent of smart beta index funds tied to indexes like the Standard & Poor’s 500 index and the “Wilshire 5000 Total Market Index. These funds attempt to enhance the performance of a portfolio that tracks a targeted subset of the market.

Despite the considerable desirability of alpha in a portfolio, many index benchmarks manage to beat asset managers the vast majority of the time. Due in part to a growing lack of faith in traditional financial advising brought about by this trend, more and more investors are switching to low-cost, passive online advisors (often called robo-advisors​) who exclusively or almost exclusively invest clients’ capital into index-tracking funds, the rationale being that if they cannot beat the market they may as well join it.

Moreover, because most “traditional” financial advisors charge a fee, when one manages a portfolio and nets an alpha of zero, it actually represents a slight net loss for the investor. For example, suppose that Jim, a financial advisor, charges 1% of a portfolio’s value for his services and that during a 12-month period Jim managed to produce an alpha of 0.75 for the portfolio of one of his clients, Frank. While Jim has indeed helped the performance of Frank’s portfolio, the fee that Jim charges is in excess of the alpha he has generated, so Frank’s portfolio has experienced a net loss. For investors, the example highlights the importance of considering fees in conjunction with performance returns and alpha.

The Efficient Market Hypothesis (EMH) postulates that market prices incorporate all available information at all times, and so securities are always properly priced (the market is efficient.) Therefore, according to the EMH, there is no way to systematically identify and take advantage of mispricings in the market because they do not exist. If mispricings are identified, they are quickly arbitraged away and so persistent patterns of market anomalies that can be taken advantage of tend to be few and far between. Empirical evidence comparing historical returns of active mutual funds relative to their passive benchmarks indicates that fewer than 10% of all active funds are able to earn a positive alpha over a 10-plus year time period, and this percentage falls once taxes and fees are taken into consideration. In other words, alpha is hard to come by, especially after taxes and fees. Because beta risk can be isolated by diversifying and hedging various risks (which comes with various transaction costs), some have proposed that alpha does not really exist, but that it simply represents the compensation for taking some un-hedged risk that hadn’t been identified or was overlooked.

Seeking Investment Alpha

The entire investing universe offers a broad range of securities, investment products and advisory options for investors to consider. Different market cycles also have an influence on the alpha of investments across different asset classes. This is why risk-return metrics are important to consider in conjunction with alpha.

This is illustrated in the following two historical examples for a fixed income ETF and an equity ETF:

The iShares Convertible Bond ETF (ICVT) is a fixed income investment with low risk. It tracks a customized index called the Bloomberg Barclays U.S. Convertible Cash Pay Bond > $250MM Index.

ICVT had a relatively low annual standard deviation of 4.72%. Year-to-date, as of November 15, 2020, its return was 13.17%. The Bloomberg Barclays U.S. Aggregate Index had a return of 3.06% over the same period. Therefore, the alpha for ICVT was 10.11% in comparison to the Bloomberg Barclays U.S. Aggregate Index and for a relatively low risk with a standard deviation of 4.72%. However, since the aggregate bond index is not the proper benchmark for ICVT (it should be the Bloomberg Barclay’s Convertible index), this alpha may not be as large as initially thought, and in fact may be misattributed since convertible bonds have far riskier profiles than plain vanilla bonds.

WisdomTree U.S. Quality Dividend Growth Fund (DGRW) is an equity investment with higher market risk that seeks to invest in dividend growth equities. Its holdings track a customized index called the WisdomTree U.S. Quality Dividend Growth Index.

It has a three-year annualized standard deviation of 10.58%, higher than ICVT. Its year-to-date return as of November 15, 2020 is 18.24% which is higher than the S&P 500 at 14.67%, so it has an alpha of 3.57% in comparison to the S&P 500. But, again, the S&P 500 may not be the correct benchmark for this ETF, since dividend-paying growth stocks are a very particular subset of the overall stock market, and may not even be inclusive of the 500 most valuable stocks in America.

The above example illustrates the success of two fund managers in generating alpha. Evidence, however, shows that active managers’ rates of achieving alpha in funds and portfolios across the investment universe are not always this successful. Statistics show that over the past ten years, 83% of active funds in the U.S. fail to match their chosen benchmarks. Experts attribute this trend to many causes, including:

  • The growing expertise of financial advisors
  • Advancements in financial technology and software that advisors have at their disposal
  • Increasing opportunity for would-be investors to engage in the market due to the growth of the Internet
  • A shrinking proportion of investors taking on risk in their portfolios, and
  • The growing amount of money being invested in pursuit of alpha

Alpha Considerations

While alpha has been called the “holy grail” of investing, and as such, receives a lot of attention from investors and advisors alike, there are a couple of important considerations that one should take into account when using alpha.

1. A basic calculation of alpha subtracts the total return of an investment from a comparable benchmark in its asset category. This alpha calculation is primarily only used against a comparable asset category benchmark, as noted in the examples above. Therefore, it does not measure the outperformance of an equity ETF versus a fixed income benchmark. This alpha is also best used when comparing performance of similar asset investments. Thus, the alpha of the equity ETF, DGRW, is not relatively comparable to the alpha of the fixed income ETF, ICVT.

2. Some references to alpha may refer to a more advanced technique. Jensen’s alpha takes into consideration CAPM theory and risk-adjusted measures by utilizing the risk free rate and beta.

When using a generated alpha calculation it is important to understand the calculations involved. Alpha can be calculated using various different index benchmarks within an asset class. In some cases there might not be a suitable pre-existing index, in which case advisors may use algorithms and other models to simulate an index for comparative alpha calculation purposes.

Alpha can also refer to the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like CAPM. In this instance, a CAPM model might aim to estimate returns for investors at various points along an efficient frontier. The CAPM analysis might estimate that a portfolio should earn 10% based on the portfolio’s risk profile. If the portfolio actually earns 15%, the portfolio’s alpha would be 5.0, or +5% over what was predicted in the CAPM model.

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