eFinancialCareers

Understanding currency and current affairs.

The foreign exchange market (FX) is the largest in the world and it’s getting bigger. Figures from the Bank of International Settlements show average daily turnover in traditional FX markets alone rose by 71% from 2004-07, to reach $3.2 trillion.

FX is all about predicting how economic factors cause currencies to rise (appreciate) or fall (depreciate) against one another.

This might sound easy, but as you’re basing your trades on changes to 20-30 currencies worldwide, it’s far from simple. To complicate matters, many of the products traded on the FX markets aren’t currencies. A whole range of derivatives are available – forwards, futures, swaps and options.

Key players

The UK might have 34% of the FX market, but it’s Germany’s biggest bank – Deutsche Bank – that has the largest slice of the pie. And Europe rules the roost in FX, with only one US player, Citi, making it into the top five.

Roles and career paths

FX roles are generally a reflection of other asset classes and fall into two areas – trading and sales. On the trading side, you’ll have the ‘vanilla’ or spot trading roles, where you will be focused on the currencies themselves. Then there’s the ‘forwards’ desk where you’ll be taking bets on the future fluctuations of interest rates within different countries. Finally, there’s the complex derivatives sector where the focus is on currency futures, forex swaps and FX options.

Sales jobs, meanwhile, are divided into different client types. For example, you could be touting a firm’s FX products to hedge funds, private clients, asset managers, pension funds or corporates.

Top foreign exchange banks by market share 2008
Deutsche Bank 21.7%
UBS 15.8%
Barclays Capital 9.12%
Citi 7.49%
RBS 7.3%
Source: Euromoney

Pay

Most FX traders are based in London, so it makes sense to look at London pay figures. All FX trading salaries are heavyweight, but you can earn more trading ‘exotic’ products than ‘vanilla’. According to executive search firm Napier Scott, top-level vanilla traders can earn £130k with a £595k bonus, while exotic traders haul in £135k and a £930k bonus.

Skills

“Within FX there’s a need to understand macroeconomics. Therefore, you need to be interested in what is going on in world events and global politics as opposed to analysing the balance sheet of one particular company, as would be the case in equities trading,” says Jonathan Pope, associate, FX, sales and trading at Morgan Stanley.

FX is still a highly numerate discipline and pure maths or physics are considered a good grounding, particularly on the exotics side.

Pope adds: “We’re covering 20-30 currencies and while the individual inputs might not be that complicated, there’s a wealth of them, so you need to be able to assimilate a lot of information very quickly and make a rational judgment on what will be the best trade on the back of that.”

Click here to find out about global trends in foreign exchange.