I work as a currency volatility trader and manage one of the bigger G10 blocs in London. I've been lucky enough to get responsibility early in my career. I started off managing a single currency book a few months into the job, and have steadily been granted more responsibility to where I am today. It's hard to say definitively what I do any given day, but usually it involves: constantly evaluating our positions (both in the light of my macroeconomic views and RV analysis), making markets for clients, and trading in the interbank market.
I think the thing I love most about what I do is the satisfaction you receive from getting things right. It's immediate gratification to be able to say each day what your contribution is... which also can make the job psychologically demoralising when you get it wrong; and you will get it wrong from time to time, that's a given.
Happy to answer any questions.
What would be your advice to a person wanted to start trading currencys. I have been trying to trade for the last 2 years but I have not had any luck, I find myself strategy hopping. Thank you.
My advice to a retail trader is that it's extremely difficult. There is so much flow and positioning you miss. The day to day price action can bare very little resemblance to fundamentals. Probably more people are watching FX spot than any other market.
Hmm... that's not really advice... ok if you insist on trading, it's going to be very difficult for you to day trade profitably, probably easier to take intermediate term views.
Awesome.
When did you graduate from school?
2010, undergraduate degree in Finance, Mathematics and Economics.
Thanks for doing this, I have enjoyed your posts.
what range of products do you trade? in which products would you express your macro view? what are the major aspects/points/nuances of your product that you think are only learned on the job and cannot be gleaned just by reading papers/on WSO. Thanks for the thread, really appreciate these.
My core "edge" comes from trading options, which is my primary expression of view (whether it be one on gamma, vega, surface, etc), but often take positions in spot also.
I also take rates views, which can be expressed via FX Swaps, IR Futures, IR Swaps, X-CCY Swaps, etc.
Most of the nuances are difficult if not possible to learn from a post or paper; it comes with experience of dealing with the objects on a day-to-day basis.
Thanks Revsly!
I have a question: how much of your trading and posistions (rough estimate) would you say are just hedges for the rest of the banks exposure and/or what % of your trades are purely proprietary.
In other words, are you working in concert with other desks or are you putting on your own prop trades...or both?
Thanks
Difficult to put a % to. Different people and different banks can handle this entirely differently. I tend to put on a position I want (core position) and trade around it. This might be something as simple as a "risk-on/risk-off" view, or as complex as, say, calendar smile position. Banks hate the word "prop," but the reality is most OTC market-making involves a lot of position taking... particularly now when spreads are extremely tight and liquidity is not deep.
Thanks, that's interesting :-)
Any interest in leaving to do something else in the foreseeable future or are you in it for the long haul?
Always a tough question. I love the markets, the intellectual challenge I find incredibly rewarding. I doubt I'd be willing to drop everything and do something else now. I would wager I am still trading in some form or fashion down the road.
Do Banks still stop hunt traders?
In what sense?
how much math do I need to know for you job? whats math did you study in college?
On the options side, most of the math is understanding relationships (like partial derivatives). For example, what happens to your vega position as spot moves or what happens to your vega position as vol moves. It's rare you'll need to do any heavy calculations, athough from time to time it may be neccesarry if you are on a more structured desk. You also should be generally quick with numbers, otherwise you might miss some opportunities.
Most of the math I studied was on the pure math side, though I did some statistics and applied math (on the PDE side mostly).
Awesome post!
My question would be what do you find in your industry are the couple of best qualities to have for a potentital candidate, be it school, work experience, etc. Is it possible to "break" into a currency trader position without being recruited from undergrad or with prior trading history?
Perhaps long in the past it would be possible to break in, but now it would be extremely difficult, particularly on the derivatives/options side.
The 2 qualities I look for are this: 1) A genuine interest in understanding what's going on and more importantly 2) The ability to come up the curve quickly. There are a ton of REALLY smart people. Intelligence alone a good trader does not make. Personally I think the best traders pick up concepts quickly, and can apply a few things they know to problems/situations they've never seen before. This, in a way, makes it a bit impossible to prepare yourself... which makes it quite similar to the real world.
What do you think are the top 3 things an intern could do to help you and others on your desk out? (Excluding lunch orders)
Thanks
Seriously though, there is 1 thing in particular that you should understand and it is this:
Have you accepted that yet? Ok great. Your internship is generally less about what you can do for a desk now, and more about what you can do for the desk in the future. I would be willing to bet most people who have done an internship or have been an analyst on a trading desk have experienced that feeling of helplessness. The thing is, for the most part your job is to soak up as much information as possible, ask good questions, and show you are interested in, and understand the concepts taught to you. No one expects you to (nor would enjoy you to) come in expecting to revolutionize the world.
If you can help out with any administrative things, that's excellent (like PNL). But even then, most desks would probably not have you do that. There will surely be some BS tasks HR needs you to do to check off some box, but primarily this is a several week interview. So spend the time wisely.
Thanks for a quick reply!
Another quick question: how important is the firm's strength in an asset class for junior analysts within S&T?
And how much of a difference would you say there really is between a 'top tier' BB and 'lower tier' BB, again, for a particular area?
Awesome thread.
Is there a reason you chose to work in London rather than NYC? I know London is the currenty trading capital of the world, but given how bad things are in Europe, do you have a desire to move to NYC in the near future?
Long-term, are you trying to transition to a macro hedge fund? Have you thought about doing an MBA or mfin/mfe?
Primarily because, as you said, London is the FX center of the world. "How bad things are in Europe" really has no impact on me sitting in London relative to NY or Singapore/HK/Tokyo. By the way, if you were to look at periphery spreads, things in Europe are PEACHY.
Won't comment on the first part, but I will say in this job you find a wide range of people. Some like the MM side, it's stable (relatively of course), while others want to prove that they don't need flow to thrive. As far as MBA/MFin/MFE, never thought about it. It would be a waste of time if you have a good job in trading. They are most relevant if you are looking to transition to some other field (or from some other field into trading), and I'm not in that position.
Im surprised more people here aren't into trading currency as they are ideal for speculating purposes...does the infrastructure your bank provide you give you a big edge over a retail trader? I mean obviously, it does..but if you were to take 10,000 quid and trade it from your personal account, how do you think you'd fair?
I would love to say I'd kill it, but who knows. I've made money in the past, but could've just been lucky.
You have so much of an advantage you don't even know. You have an idea of where stops/tps are in the market, where large barriers/strikes are (all of which can actually drive price action... tail wagging dog style), see when big customers are putting on/stopping out of positions, have an idea when some px action might be due to some fix or corporate/M&A hedging. Even with all of this info, it's still difficult to monetise FX spot, and that's saying something.
Thanks for answering.
So, what happens if someone off the street with no formal education walks in but has a killer track record trading their own FX account, granted its large enough. I really love trading forex and would love to one day work at a hedge fund, particularly one that trades currency/commodities specifically. I know it's super tough but making a winning trade is a fucking awesome feeling. What you say about instant gratification and knowing how you're doing immediately is why I want to be a trader....after working my last job as a data analyst at a marketing firm, it pains me to think about getting another boring office job where I spend 2/3 of my time looking busy instead of actually providing value and or making money. Thanks for doing this AMA, we don't see too many people here into foreign exchange as everyone here is hell bent on going to business school (which is a huge waste of time) and "exit opps"
Good traders don't need exit ops, they make their own :)
SB if I could.. Not that I am particularly interested in trading (I don't think I fit well in this line of business) I was wondering;
What are the hours like? I guess it's not purely market-hour since it's FX. Are there even night shifts? How intensive or not intensive can a day be?
Cheers!
We work closely with NY and Asia, so my hours are pretty normal. Generally 6:45-5:30. Not too bad at all.
Recently days have been dull as all hell, won't be uncommon to see people just browsing the web or finding ways to waste time. There have been days when I've been so busy and PNL has been so volatile that I haven't had time to get lunch. It can be incredibly unpredictable, which keeps it fresh in the long-run.
Thanks for the awesome thread!
What's your take on the Yen? What sources do you use for your macro news? I'm the synthetic portfolio manager for my school's investment group and I've taken an acute interest in currency recently. What would you recommend I do/read to learn more about the currency market? Any inputs on how I can blend currency futures into the portfolio?
Thanks!
I can't/won't really get into specific views I have unfortunately.
Sources wise, BBG I get a lot, I read WSJ, Economist, research, then assorted other things (like Bill Gross' letter, stuff like that).
Currency and Rates are purest macro products in Finance, easiest way to express that core view. From an investment side, thinking about carry/interest rates and which economies will outperform will be a starting point, but then you have to blend that with the "is this priced in?" side. It's not easy... if it were, we'd all be out of a job.
You might find benefit in having currencies in the portfolio as they could be largely uncorrelated with many of the assets you are holding. (Though keep in mind correlations, for example something like AUDUSD will generally be correlated with, say S&P 500 and other equities)
How can I learn forex (beyond the basics, which I know)? Are there any books/websites/something else you would recommend? I'm especially interested in being able to analyze pairs from a macro standpoint. And what are your views on USD/GBP? Just wondering.. Thanks for doing this, I appreciate it.
I don't really have anything in particular unfortunately. People take views in all different ways on the macro side, could be current-account related or IR related, the world is your oyster. None of them are necessarily right or wrong, it's just like trying to value a company; if you really want you can likely find data to support your thesis. Whether or not that thesis is correct is an entirely separate matter.
How important was the Hull book you sold me to getting this job and to the usefulness to your job? Did you intern in the US and then go full-time to the UK? How much will you pay me not to post your linkedin picture? (just kidding on that last one, thanks for doing this)
Haha, I entirely forgot about that! It was quite useful for me, but it's what you make of it. If you mention in an interview/on your resume that you are familiar with options theory, you're opening yourself up to a ton of questions. If you do well it will reflect positively... if not, well you just sort of look like a pretender.
I interned in the US and went Full-Time UK, correct.
What did you have for breakfast? ;)
Seriously, though, do you get a lot of freelance work or are you on a salary? Both?
Sausage on a roll, tho normally I skip breakfast.
I work for a bank, so have a salary similar to those in Investment Banking.
Do you guys get a discount on spreads? When i trade currency pairs I usually try to trade the pairs that are in session (Sterling/Dollar Sterling/Yen) for example during the London session as the spreads lower substantially as liquidity obviously is greater. I trade using Oanda and have been looking at uncommon crosses such as the GPB/PLN or the ZAR/JPY and the spreads on these pairs are super high!
Also, does your banks software have all types of crazy indicators that us retails guys don't have? Does IT help you design/implement indicators? I don't usually don't use indicators as I primarily use trend lines and S/R lines but have been toying with using SMA,EMA,WMA to show where support/resistance may or may not be. I'm a firm believer in price action trading :)
Also, does your banks quant/algo desk trade currency pairs? It seems like the quant/algo guys focus primarily on equities/derivatives, forgive me for my ignorance as i dont work in finance
It's not a discount on spreads... we have direct access to the market via platforms like Reuters, EBS, etc (well I don't on the options desk, but my spot desk does who I'll generally trade through). Otherwise, we have software which has algorithms to most efficiently trade rates, especially the crosses. The reason something like GBP/PLN is so wide as it's the cross of two individual pairs (EURGBP and EURPLN). Ie if you want to immediately deal GBPPLN, you have to cross 2 B/A spreads.
I don't really use technicals other than looking at support/resistance and maybe RSI on occasion. I'm sure many people do tho.
Thank you so much for answering our questions! I really appreciate it! So I have become extremely interested in currency markets as of late and have begun to try to learn all I can. Is there anywhere you would direct a novice investor in currency markets to learn as much as they can? Or gives a few of your best tips? I'm starting to attempt to put together 6 month to year long fundamental views on the markets (not saying they are near correct, but just for a learning experience) to see what I can come up with based on the government provided macro data. (not attempting to invest on it until I understand more). Would you say this is a good place to begin? I'm assuming the bank relies on its own models which I am not sure how to even begin creating yet, but any advice on deciding which economies will outperform? Is the government data good to use and analyze or do you feel, for instance, the bank ends up having much better numbers?
What are your thoughts on Rates/FX street research? I've heard it's common advice never to trade based on someone else's idea, but did you use street research to move up the curve? Thanks.
I'll read research, but just like anything else you need to be critical of it. Definitely can disagree with research, like I said before, that's why there's a market.
Very interesting so far. Thanks for doing this. From your total volume of options trades, what percent are vanilla and what percent are exotic? From what I understand, each guy on a spot FX desk trades a specific pair. On the FX options desk, do you trade all kinds of options (vanilla and exotic) on a specific pair or do you trade one specific product (digitals, barriers, etc.) on many different pairs? Or is it a mix of both? Also, what's your take on Taleb's Dynamic Hedging compared to Hull and Natenberg? Last question, how much did you actually "know" when you started your internship versus what you learned on the job?
Hmmm, I'd say 70-80% of trades are vanilla in nature, but the exotic market is one of the most developed in the world. Only rivaled by equity index (it's deeper I'd say).
FX spot traders may market make a certain currency but they'll often position in anything.
On the options side, vanilla and flow exotic options are managed together, generally in blocs of currencies. Depends on the bank. We are split in 2 between Euro area and Asia Pacific. The more structured trades are done by another pod within the desk, who try to hedge the core risks with our desks.
Dynamic Hedging is a great book (though in general I don't love Taleb, he does well with this).
I'd say I knew more than the usual person, but more importantly I knew a ton more by the end than I did at the beginning. Goes back to the whole "soak up as much info as possible" advice as I said before.
Great stuff, gave you a SB. Always enjoy your views.
great thread
How much leverage, if any do you use?
Pretty much impossible to figure out at a bank as you don't have a set AUM per se.
Brilliant thread. Couple of questions. What % of your views involve delta positions (if any)? Or do you just trade vol? How do you trade interbank? Brokers or do you have an active direct market? When you trade rates do you buy/sell from/to your own desks at the bank? What differences do you see between FX vol and other FI vol desks (rates, credit..)? Is liquidity significantly higher in the FX space due to the liquidity of the underlying?
Can always take delta positions, either protected via options, or just pure punts. Trading vol you also realise that there are ways to synthetically trade spot also if you want (like trading gamma RR, etc).
Interbank trading is done one of two ways: Broker market or Direct Market. FX Vol probably has one of the biggest direct markets, I can call any dealer up in almost any contract in 100 EUR or USD (or spreads) and they'll make me a rate. You don't have to be in direct, but if you aren't others won't make you... so it's another liquidity source. I love the direct market as it's always fun to be able to anticipate what others are trying to do.
I usually go to our own desks, it's nice to keep it in house if possible. If I think I'm getting poor rates I can go externally or through broker market (or ask them to go to broker market). I tend to have good relationships with the guys in other areas.
I can't say for sure as I am not super familiar with credit vol, but relative to rates vol FX is a lot more liquid and developed. There used to be a more active exotic market in rates, but most blew up during the financial crisis.
Hey bud, good thread.
A few more for you:
1- when you need to hedge with an IR product, do you go to your traders working that specific desk or do you have direct access to different products assuming you need to hedge with something not normally in your book?
2- big day this week with ECB on Thursday....consensus is for -25bp (-50bp possible)... it seems like EURUSD has been a shitty indicator recently of this impending cut. we trade fixed income derv's (euribor, eonia, bund vs UST etc) and it's been a tough nut to crack the past 2 weeks. EUR FX was saying 'cut' since the big selloff on the 25th, but now rallied back to levels indicating 'no cut'. euribor (front) curve has slightly steepened indicating 'all is well' --> no cut, all the while Bunds and USTs breaking new highs, which should indicate cut as well. basically indicators are all over the place and so, from a purely FX perspective that you have, what are you seeing? in FI-land, i'd say theres about a 50-50 chance of a cut, so definitely not a sure thing.
3- favorite post-work bar?
Mentioned just above the first question.
The rates market pxing in a cut, though its still unclear how much the euribor fixing will move even if they cut. EURUSD of course can move for many reasons, but it's not entirely clear to me whether a cut is necessarily bad for EUR as a currency intermediate term... it's a tough one.
Not going to say, they have great cigars though.
Noticed you interned in the US, did you go to a US school as well?
Did you intern at your current bank within the same FX group?
I did go to school in the US but started working in London. I interned in NY with 3 groups, this being 1 of them.
How'd you engineer the switch? Are you a EU citizen that did their undergrad in the US, or are you American? Did you work in London/Europe prior to starting FT?
SB for you. great post
Do you feel that the FX desk is comprised of people from int'l relations/macroeconomics background more so than other trading desks? Or is it just another asset class and you just need mathematical agility and general talent for trading like most other desks? I ask because I'm considering a grad degree in IR in the future, and want to gauge if it will provide me with any competitive edge in currency trading (Kennedy School, G'town SFS, etc).
Thanks a lot. One of the more knowledgeable Q&A's I've seen on WSO recently.
Not really, it's no different than any other desk. Maybe some IR knowledge will be helpful, but like anything else, you can pick up the knowledge on the job.
Sorry for the blunt question, but what sort of bonuses are guys on your desk taking home these days?
Sorry can't comment on this.
What kind of blogs or hedge fund letters do you read other than Bill Gross monthly?
Any recommendations/websites for global macro stuff?
Are you planning to go to the buyside in future or you just love it at your current bank?
You have stated you have utilized math at the options/derivatives desk. From your perspective, would you prefer someone with an Computer Science degree or a Mathematics degree for trading? Is it more important to program or having a stronger math foundation? I mean its always good to have these 2 attributes, but if you were choose one, which would it be?
1-2. Like anyone else, I read ZeroHedge (if just for the entertainment value) and mostly different research pieces. Hard to say one in particular.
I'm sure some people know who I am so of course can't comment!
Either really, having done some CS myself I find it very good too because it ingrains in you a very logical methodology to problem solving. Math does the same.
Is it possible (if so, how difficult it is) to get into trading with an Economics degree?
I am about to start undergraduate at uni and was wondering that if I would start trading a personal account of mine (fx and options) now and keep on trading till I graduate, would it give me an edge when applying for positions in the future?
Not hard at all, economics is definitely a respected major, it comes down to your resume/interviewing/personality etc.
It gives you a better appreciation of the markets, that's for sure. If nothing else, it helps you keep track of what's happening. Just don't pretend like trading some PA has made you this genius hot-shot trader. It sounds obvious but believe me I've seen many people like that.
Great thread. One question: You often hear people say that trading (compared to I-banking or consulting) is more suited for introvert personalities. Does this mean that you basically work by yourself or do you still feel like you are part of a team? How much communication/teamwork do you do on a average day?
Wide range of personalities, the introvert stereotype isn't really rooted in any truth. There are many loud extroverts as there are quiet types... and everything in between. It's rare to not be working on a team. Even if you are managing your own book, you're likely part of a larger desk (eg FX Options), which is part of a larger area (eg FX) which is part of a.... you get the idea.
Being on a trading floor is a lot of fun. I sit closely with all my colleagues and we joke, chat to pass time during the day.
I understand the concept of a piece of news or rate cut being "priced in" to the markets, but how do you personally arrive at the number - the degree to which something is priced in? Like quantitatively, what is your process for determining whether a 25bp or 50bp rate cut (or any other kind of economic news for that matter) is priced in? Another example would be, how do you arrive at the probability of a peripheral blowup that the market is pricing into EURUSD?
I interned on a couple of desks but never got a straight answer to this. The process seemed very wishy-washy and poorly defined, and I suspect most of it was guessing. Do they do it any differently at your firm/desk?
Thanks
Simple answer is you can't. In the rates market you can largely tell if a specific move is "priced-in," but FX rate is the product of many factors, interest rates merely being one of them. If you believe markets are entirely efficient, if the rates market is pxing in a cut, then so should the FX market... but I wouldn't say that's the case.
Another question I had from someone else's thread - you probably never saw my question after your initial post, but would be great if you could address that too!
Depends on the product. Libor based futures, for example, depend on future libor fixing. Which is not just CB rates, but funding in the interbank market. Libor fixings can move without the CB benchmarks changing.
It's not as obvious these days in rates vs fx. For example, a cut in rates could be bad from the carry perspective, but it could help ease concerns about funding which could be net positive for a currency. All sort of things like this. That's why trading isn't black and white, relationships are constantly changing.
Hello. Thank you for a great thread. I would like to know what models and theories (apart from BS options pricing) a candidate should know to absolutely crush a technical interview for fx options trader position? What about non-technical side? What type of person would be a perfect fit for the position?
Unless you've been in the industry, I'd say most people don't expect a crazy knowledge of the models, there are a variety of one's particularly for exotics.
I can't answer that, and I suspect you know that... how do you know if someone will like you or not?
I see. Thank you - much appreciated.
Thanks for answering the questions! how important is technical in the eyes of a professional Currency trader? Do you use mainly fundamentals to trade and technical as a guide for executions, or would you trade purely on techincals?
are you bank fx guys in general allowed to trade cross asset classes? are you allowed to do equity indices? commodities?
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