I know this may sound a stupid question.
I understand what FX trading is
But what I dont know who is who the trading is done for at a BB - for example, in equities, the sales person will work with institutions like pension funds and the trader... will trade them.
Is the same true for FX, are they still dealing with clients like pension funds or is it entirely proprietary, just trading off the changes in price to make money for their firm?
FX trading has flow clients. Lots of multinational corporations look to hedge revenues from countries in which they operate in via FX forwards, swaps, and options. Financial and non-financial companies also need to engage in FX transactions in order to swap debt securities issued in one currency to a currency they prefer to pay in (e.g. Asian companies issuing debt in the US to get access to our capital markets but who make money in another currency and don't want to maintain or manage that currency risk, so they will swap it with a BB FX dealer).
That said, FX is a huge, deep, liquid market so margins are thin thin thin. As such, historically FX desks have engaged in a lot of prop alongside client flow to supplement revenue, taking positions that reflect the views of the desk. We will see what happens to this post Volker rule though.
You said it all, but just to add on, spot fx is basically all automated anyway, and where the real money is for people is FX options and trading FX volatility (i.e. VolContracts) instead.
Just a note, FX Spot is exempt from Dodd-Frank (and by extension the Volcker rule), so they can continue to take proprietary risk in a delta one manner.
Ah ok, thanks for the insight!
The reason I ask is because I am likely to meet a pretty senior guy soon at a BB which is one of the best for S&T and in particular FX and he is a senior guy within FX sales
I just wanted to know a bit about the market in which he operates so I dont sound completely clueless
ok nice one, thanks!
do you have any links to a quick overview or guide similar to vaults guide to S&T, I found that very useful, unfortuantely they dont have a section on FX or a guide on FX!
The first is more about the vanilla FX market, the second about derivatives.
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