FX SPOT
Introduction to FX SPOT
OVER THE COUNTER (OTC) - FX SPOT: WHAT, WHY?
What is a FX SPOT?
A contracted agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on
the value date
What is a Value date?
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FX SPOT VALUE DATE
Business days
1 2
Trade Value
Execution Delivery
Date Date
The value dates for most FX trades are "spot", which generally means two business days from the trade
date (T+2). The most notable exception to this rule is USD/CAD, which has a spot date one business day
from the trade date (T+1).
POP QUIZ!
Can you name another currency pair from Emerging which has a spot date (T+1) (Croatia HRK , Russian
RUB , Turkey TRY)
(Croatian HRK , Russian RUB , Turkish TRY)
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Comments: SG key service is to manage
OUR SERVICES clients risk.
AVAILABILTY SDP
SERVICE
CROSS CONNECT
DATA CENTRES MDP
LDN
NY 4th ?
TKY
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FX SPOT - RISKS
Managing Risks
Price Gaps
A news event may take place on a weekend that can push prices significantly in one direction. The market is constantly moving
even though a traders access to that market may be limited at certain times.
As a result, there is a risk that prices gap and move quickly. This most frequently happens over the weekend and during news
events. However, it can happen anytime.
Therefore, the best way to manage this risk is by avoiding weekend exposure, avoid trading exotic markets, and avoid trading
through major news events.
Margin Requirements
Increasing margins is a way to cushion against volatile market conditions. When volatility increases, there is a greater credit risk to
the trader, so they manage the risk through margin increases.
Can be increased without warning
Spreads Widen
When banks become fearful or uncertain, they pull in their quotes which causes the reference and benchmark rates to widen out on
the bid and ask. As these spreads widen, it gets passed along into the retail market.
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SG SPOT PERFORMANCE - TOP CLIENTS AND CCY PAIRS
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SALES CREDIT & PNL
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SUMMARY
What is FX Spot?
The simplest way to explain or understand FX Spot is
by its requirement...
Future of FX Spot
How does SG make money?
Sales Credit and PNL
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THANK YOU
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FX SPOT - WHAT, WHY?
Managing Risks
We are going to cover 6 risks that grow more prominent in extremely volatile market conditions. Well follow up each risk with suggestions
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Read more about price gap risk.
2. Liquidity Thins
During times of risk aversion, the depth of available pricing begins to thin. The resulting illiquid conditions makes it difficult to get into and
out of positions without taking a hit on the price.
Some markets tend to be more liquid than others. Therefore, carefully choose a market that tends to be more liquid. These include, but
are not limited to, EURUSD, USDJPY, and GBPUSD, which are 3 of the more liquid FX markets. Stay away from exotic markets.
Markets such as ZAR, HUF, and CZK may see an imbalance of trading on the bid and ask which could make it difficult to trade.
Lastly, while in trades, maintain conservative amounts of leverage or no leverage at all. Providing a cushion of usable margin may help
prevent a margin call when the interbank market place pulls back its liquidity.
Read more on liquidity risk.
3. Increased Margin Requirements
Increased margin requirements is a safety mechanism for brokers and banks to cushion against volatile market conditions. When volatility
increases, there is an increased potential for larger market movements, illiquid markets, and gaps. These scenarios pose a greater credit
risk to the price makers and greater risk to the trader through negative balances. Brokers dont want to be on the hook for your losses so
they manage the risk through margin increases.
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Since margin requirements can be increased without warning, manage this exposure by avoiding markets with a known event risk taking
place. Also, steer towards the more liquid major markets for trading as their margin increases are likely to be less than exotic markets.
Sales Credit: measure the contribution from sales of business. Its made up of two elements: 1. Hard markup and 2. Technical
margin.
Hard markup (commercial margin): is the amount added to the spread in order to make extra money. Used to be bigger with more
imperfect and less transparent markets.
Technical margin: % of bid ask spread attributed to sales to reward them.
Even if a client provides zero or very low sales credit, their enquiries are relevant as they provide relevant information to the traders.
Sales people have a target sales credit to meet.
PNL: managed by traders, measure how profitable a client or strategy is. Depend on information from Sales.
Reminders/others:
The bigger the size the wider the spread since the transaction is riskier.
The more flow a trader receives, the faster they can close the position, taking less risks.
Distribute information regarding clients between market dealers is forbidden (collation).
On FX we only give two way prices skewed accordingly.
Recommendation: book Why arent they shouting by by Kevin Rodgers
FX Options: right to buy and sell but not obligated at a pre agreed price in the future.
FXO Strategies:
Plain & Vanilla most used strategy PNL
Sales Credit Call: option to buy
Put: option to sell managed by traders, measure how profitable a client
The measure the &
Straddles contribution
Stranglesfrom sales of business. Its made up of two or strategy is.
elements: Straddle: both call and put at same strike price and expiry date (pay both premiums)
1. Hard markup
Strangle: both call and put at different strike price but same expiry date (maturity)
Depend(useful for predict
on information fromlarge price
Sales.
2. Technical margin.
movements)
Risk Reversal margin): is the amount added to the spread in The more flow a trader receives, the faster they can
Hard markup (commercial
Many close the position, taking less risks.
order to makemore...
extra money. Used to be bigger with more imperfect and
less transparent markets.
Distribute information regarding clients between
Premium: Buy Pay premium FUTURE
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Sell
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spread premium
attributed to sales to reward them.
The Number One Tier 2 Bank
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Sales people have a target sales credit to meet.
End of year SG will be using SG MARKETS includes both Cash and FXO
FX Options Traders trade Spot to hedge their positions.
SLA between FXO Traders and Spot Trades to ensure fairness
FX research sites
https://www.scribd.com/document/247042942/Intro-to-FX-slides
https://www.scribd.com/doc/50752849/fx-ppt
https://www.scribd.com/document/199236713/Fx-Trainer
https://www.scribd.com/presentation/242334787/Currencies-and-the-FX-Spot-Market
BNP Paribas Securities Services adds forwards and swaps to its automated foreign exchange (FX) product and now offers auto-FX with 24 hour
coverage on 44 currencies.
BNP Paribas Securities Services has enhanced its FX platform FOX and now offers clients passive FX hedging. Based on simple rules (net asset
valuation of the portfolio, deal size and portfolio hedging cycle), the new system is able to evaluate hedging needs linked to an investment and to
process automatically forwards and swaps.
BNP Paribas Securities Services now also offers 24 hour FX coverage including additional autoFX batches via its European, Sydney and New-
York desks. It captures client FX orders on trade date, rather than the next day, hence minimising their exposure to FX volatility.
Florence Bonnevay, head of market and financing services, BNP Paribas Securities Services comments, In todays challenging environment,
clients are under increasing pressure to manage costs more effectively and minimise operational risk by automating processes. Our new offer
allows institutional clients to benefit from the comfort of having a comprehensive automated service that manages FX risk exposure on portfolios
invested in currencies.
JP Morgan
The purpose of this letter is to clarify the nature of the trading relationship between you and the Corporate & Investment Bank at JPMorgan Chase
& Co. and its affiliates (together, JPMorgan or the Firm) and to disclose relevant practices of JPMorgan when acting as a dealer, on a principal
basis, in the wholesale spot foreign exchange (FX) markets. We want to ensure that there are no ambiguities or misunderstandings regarding
those practices.
We ask that you read this letter because it sets forth our standard terms of spot FX dealing generally with our clients (together with other market
participants, counterparties) in principal-to-principal transactions in the wholesale spot FX markets (as well as when you act as agent for another
principal). It sets forth how we will communicate and transact in relation to requests for quotes, requests for indicative prices, discussion or
placement of orders and all other expressions of interests that may lead to the execution of transactions and our management of potential or actual
conflicts of interest in our principal-dealing and market-making activities.
JPMorgan is a global financial services firm that has operated and continues to operate as a dealer and market maker in the wholesale spot FX
market. As such, JPMorgan engages in price quoting, order taking, trade execution and other related activities. Unless otherwise agreed,
JPMorgan engages in these transactions as principal for the benefit of the Firm. In that capacity, JPMorgan does not act as agent, fiduciary or
financial advisor or in any similar capacity on behalf of its counterparties. JPMorgan is dedicated to upholding a high level of integrity and adhering