From what I understand, since FX is a 24 hour market, the books are passed from Asia to Europe and then the US. So, how does P&L calculation work. If you put on a position in the US and the positions makes profits after you pass it to Asia, who gets the P&L? If the initiator takes the P&L credit, then I'm guessing that FX traders give some pretty clear instructions to their overseas colleagues how to manage those positions and when to close or add to the positions.
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Depends, our spot desks have individual books, not sure when they calc PNL (I think NY EoD for PC purposes). Our options desk's book is a global book, with NY EoD.
I don't mean to be ignorant but what does EoD and PC stand for? I'm guessing End of Day and Profit Calculation? If it's essentially daily PnL calculations, what if you want to put on a position or you have client positions that are more long term?
EoD = End of Day, PC = Product Control.
How is having a long-term position any different? PNL is PNL, no?
true true but if you put on the position and you expect it to be constantly profitable for the next month and PnL in each time period is assigned to the trader who manages the book, your overseas counterpart will be getting credit for your position. Or is the PnL attributed to the trader that puts on the position regardless of who is managing the position at the time?
Well that's why bonus is paid out at a book or even desk level, it doesn't make sense to do PNL attribution to only when the trader is watching the book in a product like FX Options. You'll generally find that FX is much more of a team-oriented environment, because you are trusting your NY/LON/SING(TKY) counterparts with your PNL.
thanks man that makes sense. I always hear about people in the industry calculating individual PnL numbers to justify their bonus/ compensation but I guess FX is a more team oriented which makes sense.
Sure, like I said I believe our Spot desk is individual, I think they instruct people what to do with any possy they hold overnight in their own book or leave odas.
As far as compensation, a lot of the books trade primarily in one zone, for example, the EURCHF (or cross book) action will almost exclusively be in London, so its easier to attribute PNL to one person than say the EURUSD book if that makes sense.
Before I leave everyday (and same with everyone else in London), I give a rundown of what happened, how I'm positioned, and what the covering traders should look out for, ie if I see weakness in the front end I might tell them to offer out gamma.
Am I right in saying that FX spot is a lot more prop than many other desks, in that the spread is so small that the trader has to take a lot of prop risk in order to make money?
That would be an accurate statement, yes. Sometimes I joke that they quote clients because the bank forces them to do so... it's not as absurd as you'd think, but you don't laugh too much because who knows whose market could be next.
So a 1st/2nd year analyst is effectively a prop trader? Or are the more senior traders effectively prop and the juniors deal with the flow?
You mean in FX Spot? It's just the nature of the market.
Some markets (generally the ones with very tight spreads ie cash) involve prop trading as their core. They likely are not going to make budget through market-making alone so they tend to take more prop positions. It also tends to really depend on the product and even the bank/desk culture.
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