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FX traders take plenty of prop positions.
Yeah, particularly in FX Spot they take tons of prop positions but must also be ready to face clients.
do the fx traders who work with corporate clients get paid a lot less, and is it hard to break into the institutional side afer being in corporate?
I hear most fx traders are recruited and trained internally, and not so much transitions.
a lot of not-so-accurate information here. i rotated on a top 3 fx desk in my past.
for sales, you have the following
bank sales -your clients are big, international, balance sheet banks - think HSBC
corporate sales -you come up with various solutions to help global F500 companies (like MCD) hedge their FX exposure. a lot of these solutions are bespoke/customized.
structuring sales -you do a lot of fx-linked notes and sell them to either institutional or retail clients. could be a principal protected notes that is linked to the BRIC currency basket, or range accural note, best-of, worst-of, etc. These structures can get very funky. you come up with new ideas work with fx option traders to price these notes.
hedge fund sales -well, you provide color on fx for macro hedge funds
The sales people need to understand the entire spectrum from spot, to forward to options to even correlation products some time.
for trading you have:
Spot fx -you cover a specific pair of currency . like you are either the aussie/kiwi guy or the sterling dude. Automated marketmakers in house (a software) will make markets on flow orders 1mm. you spend your time on big orders, providing colors to sales and prop trades.
forward -more like a rates desk, as rates is what drives the forward market. again, you are both a market maker and a prop trader. when salespeople structure come up with some hedge solution for clients that require the use of forwards, you gotta have a bid and an offer.
options -divided into short dated, long dated, and exotic.
As you move from spot to forward to vanilla options to exotic options, you are more and more focused on flow orders and less on prop. the reason spot traders do a lot of prop is because computers have taken a lot of their role and they need to trade prop to add value.
never heard such thing as agency trader in the fx space. everyone is just a flow trader who can also take prop positions if they have a strong view on something.
I'm curious - why don't exotics take prop positions? Seems like there would be significant room to do so... most of those pricing models are complete back-of-envelope horse shit. I mean, let's be real - most of the assumptions that go into some of the exotics are little better than how you are cutting the interpolations... especially on the best-of, ladders, double lockouts, lookbacks, etc.
appreciate the info..very concise
so i can rotate from trading spot for corporate to instit.
thanks
good question
Simple answer: the spreads are much wider in exotics. FX Spot spreads are so tight that having a big prop book makes sense (even though notionals seem big). As a result of wider spreads in exotics, you don't really need to take as many prop positions... not to mention you'd really need to face another dealer to take the opposite position... which is done, but there are more things to consider. Another consideration is that Exotics are harder to hedge/unwind
To clarify - I would expect prop positions in exotics to mostly be about leaving one or more legs unhedged. You can disguise a little more by synthetically hedging the rest through vanilla options, especially when you're dealing with bespoke structures.
Exactly, "prop" in the exotics space is often deciding what to hedge and what not to hedge in terms of the client positions you face.
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