G10 and EM FX Trading
Hi, I am an avid reader of the site and have a quick question regarding two desks within the FX group.
If you were to have to pick between trading roles in G10 (spot) and EM FX (spot + NDF), which would you pick and why?
I come from an economics background, and long term opportunities (though not necessarily exit opportunities) are certainly a point to consider.
Here are some pros/cons for each that I've thought of.
G10 Spot
Pros:
- G10 is macro in its purest sense, with each pair affected by just about everything in the global market
- Larger notional trades
- More focused on prop positions
- It's trading in its purest sense. Spot traders, possibly more than anyone else, have an intense focus on risk management. Ideation is pretty limited when you're trading only one pair, so traders differentiate themselves with superior risk management techniques.
- More macro fund exit opps(?)
Cons:
- Traders specialize in one pair and there's little to differentiate one EURUSD trader from the other
- Recent criminal allegations have banks heavily scrutinizing trades on G10 desks, potentially limiting activities to more of an agency function
- Voice trading volumes continue to drop in favor of electronic trading
EM FX
Pros:
- More quantitative
- More trading methods (curve trades, flies, spreads, etc.)
- More assets (you would cover all of EM LATAM, EM APAC, etc. instead of just EURUSD or USDJPY)
- Opportunities to learn how to trade in low liquidity environments
- More transferable skill set for internal opportunities(?) (familiarity with modeling, delta one products, etc.)
Cons:
- Significantly lower volumes
- Product can be very cyclical (APAC EM can be hot for a decade then dead for the next and it could be a career killer to sit on a dead asset)
- EM Niche; EM guys can get stereotyped as EM guys and are left out of broader macro roles
I've also thought about FX options, but the vast majority of the traders I've met on FX Options desks come from engineering, computer science, mathematics, or MFE backgrounds. As a result, I could see myself being a competent FX options trader, but hardly one with an edge. While the same could be said about basic equity flow derivatives trading, I feel more comfortable with that than pricing light exotics on the fly in FX.
Depends on your personality. Personally I love EMFX, but that's because it suits my personality more than all the other factors which are pretty inconsequential in comparison. FX can be very macro orientated in a longer term view, but day to day it is anything but. Rather, look for the most pain.
Do FX Options if you have the choice, don't be intimidated by the backgrounds, it's largely irrelevant.
What's your reason for FX Options over Spot desks? Is this just for FX or would you say Vol desks are better in general to try to get a spot then Cash desks across different products? Thanks.
What's your reason for FX Options over Spot desks? Is this just for FX or would you say Vol desks are better in general to try to get a spot then Cash desks across different products? Thanks.
I would generally recommend vol desks over linear, you get an additional skill set of trading volatility as an asset, along with the underlyings. In particular in FX, I would not recommend joining a G10 desk, it's dying. EM / NDF a bit better and I guess you get the rates component, but still if there's a choice Vol is the way to go, in particular if you'd like to move beyond bank side some day. If you're uncomfortable/ not interested in heavy exotics, you can focus on flow products.
Thanks for the answer. You mentioned vol is better for moving beyond a bank. Would you say vol desks give you a better platform to potentially move to a macro fund?
Also, when you say it's dying is that just due to the combination of increased regulation and technology driving down opportunities and head count on bank desks?
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