Home Forums Main Forum FX Forwards

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  • Curve Advisor
    Keymaster
    Post count: 612
    #3556 |

    Viewer Mail: I wanted to ask you a question, that perhaps might be beyond your expertise, but given your experience i’m sure you might have some comments.

    I might join a small buy side desk that hedges currency for gold transactions(the gold legs dont require hedging only the currency).

    And i understand the the daily flow of the desk is about the limit that a bank trader(market maker) can take without asking for permission from his manager.

    The trading is done using forwards, and its a small club of liquidity providers, 4-5 different banks. quotes still on the phone.

    How would you go about improving the execution? any ideas on how to synthesize the forward towards a more liquid asset? Or am I stuck with the old boys club?

    we are trading COP/USD crossing is about 0004 .i.e bid3.000 offer 3.004,

    I have almost no experience with FX, so I would have no idea where to start. The only thing I can suggest is that the markets are all interrelated. You may be able to approximate forward FX via a fixed income trade between countries. Some large exporting countries may have currencies highly correlated to certain commodities, certain equity indexes, or even a neighboring country’s FX. Try to think outside the box. But I’m not sure if these are within the scope of what your firm is comfortable doing as a hedge. You should obviously discuss with your manager first.

    Just curious if any readers can add anything.

  • Michael
    Participant
    Post count: 5

    I have to add something. I hope it will help.
    1) There’re much more liquidity providers for FX forwards, almost every big bank will be glad to provide you liquidity (of course, your company need to have enough funds for that).
    2) FX forwards mostly executed electronically; in case if you have to deal over the phone within small club, be ready to pay more that “big guys” (or big hedgers).
    3) In fact, forward market prices differ from naive interest rates difference adjusted spot. There exist XCCY basis which last time had a lot of volatility, and of course CIP (covered interest rate parity dislocation). That’s why forwards are not so simple and “vanilla” like we had on “students desk”:)
    4) Yes, you can try to create synthetic forwards via different constructions, however I’d prefer to invest in the infrastructure (platforms, liquidity), than to have unnecessary complexity.

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