Currency Traders Are Left Out of New Wall Street

http://www.bloomberg.com/news/articles/2016-02-08/a-dying-breed-currency-traders-are-left-out-of-new-wall-street

by T-A • 10 years ago

50 13 10 years ago

Sniffnoy3• 10 years ago

This article doesn't seem to address the question -- why currency traders, specifically?

gotofritz• 10 years ago

"Humans are up against formidable opponents across the industry. Take Virtu Financial Inc. Deploying sophisticated technology in the business, the company’s computers can trade more than 11,000 securities and other products on more than 225 trading platforms in 35 countries. Because automation is so deeply ingrained in its business, it had only about 150 employees last year -- generating more than $5 million per worker."

Sniffnoy3• 10 years ago

Which does not address the question -- why specifically currency traders rather than other sorts of traders?

rluhar3• 10 years ago

TLDR: FX is getting to where equities and derivative markets have been for a while

FX is an OTC market. There are no official "exchanges". Most trading happens either on the interbank markets or via brokers like ICAP, BGC, etc.

Over the last few years, the spreads (difference between a buy and sell price) have compressed. FX Clients (i.e. corporations, hedge funds etc.) who would trade directly with their preferred banks; now aggregate feeds from multiple banks and brokers to attempt to get the best possible price.

This automation and increase in client sophistication has led directly to tailored market making and sophisticated risk management. The number of players in the FX market has increased as the technology has commoditised. Things like the latency and quality of your market making feed have become differentiators.

All of the above has resulted in the market going electronic and a massive reduction in the proportion of trades being quoted and managed by human traders. In most banks, market making is now done by algorithms that aggregate market data and other information from a variety of sources.

Traders have either become specialised to niche currencies (Asian, Emerging Markets, etc.) or at dealing with extremely large trades. Their job is now all about determining the type of rate (i.e. which algo) a client should get and how the risk from those trades is managed (aggressively, passively, etc.).

I have worked on FX desks (as a developer) for 10+ years. I have seen spot trading desks shrink incredibly, with old school traders being replaced by quants and quant-developers. The algorithmic trading space in FX is not as sophisticated as that in equities of derivatives, but is getting there.

osullivj2• 10 years ago

Cash FX (spot, forward, simple swaps, cross rates) is almost totally automated. FX options is less automated. Since FX is less capital intensive than rates or credit, there's still a fair bit of old fashioned trading activity there, even among banks that have withdrawn from other FICC & equity areas like UBS.

Sniffnoy3• 10 years ago

So it took longer to happen in FX because of the lack of exchanges? Or what?

ryporter2• 10 years ago

It's partly because foreign exchange was slower than, say, U.S. equities at becoming automated. If any of the electronic bond-trading platforms every takes off, then that market will see the exact same trend.

ryporter2• 10 years ago

I used to work for a forex hedge fund, so I witnessed some of this trend (though primarily via my boss who had regular conversations with many banks). This trend is very real. Underlying it is the continual shift towards automation, but it was greatly amplified by both the financial crisis and then the forex scandals. We interacted with many former forex traders who had transitioned to a sales or support role. We also at times had trouble getting anything done with banks because everyone was seemingly fired or on leave due a scandal.

abcampbell• 10 years ago

y, it's an interesting trend.

Decision making processes evolving to machines talking to machines, and humans talking to humans.

Currency Traders Are Left Out of New Wall Street

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