Okay, I’ll admit it right out: I am blogging from work. Generally, that is never a good idea. Your employer is tracking your every keystroke so better not trash the boss or the guy one cubicle over. Blogging is a waste of company time too, right? Well, in my case, I am trying to use it to be document and synthesize some of the work I am doing as an intern at State Street Bank in Hong Kong. That means this is an exercise mostly for me, but you are welcome to follow along with the lessons learned. One thing I must be careful to avoid is divulging any company insider information. That means no releasing internal data or anything like that. Sorry for those wishing to bring down the bank.
I am working as a sales/trading intern at the Foreign Exchange (FX) side of State Street. The FX market is open twenty four hours a day, six days a week as a one-hundred percent electronic market. Banks around the world buy and sell currency (the US Dollar, the Chinese RMB, the Japanese Yen, the Euro, etc.). This works a lot like traveling to a foreign country and exchanging money, except that it is all done (one against another). Most commonly, currencies are paired with the US Dollar (USD). The principle in making money is the same as in the stock market: buy low, sell high (or variations on that theme: buy high, sell higher; sell high, buy low; etc.) Since currencies fluctuate just as stocks do, the idea is to buy currency when it is low or weak and sell currency when it is high or strong.
And there certainly is a lot of money to be pushed around. Banks do transactions on behalf of customers wanting to have liquid (cash) of a certain kind. If a customer calls in and says she wants Japanese yen, it’s the banks duty to go out and get a buy yen for that client with another currency. The second function is that banks try to make money directly by buying and selling currencies on speculation that a currency will go up or down.
There a lot of factors that may affect a buy-up or a sell-off of currency. The most direct affect of currency movement is when news comes out about a country (not necessarily news about its currency) and it does not meet expectations (or surpasses them). Then the market moves to adjust to that news. That’s why traders here are connected to news services like Bloomberg, all the time. Individuals and their banks can sometimes have great affects too with or without connection to the news. If an individual decides to buy many million in Thai Baht, that can single-handedly boost the currencies value as other banks also try to jump in to make a profit.
So how does one gain a competitive edge in the Foreign Exchange? Dissemination of information (news) is relatively equal among banks so the key is finding information not necessarily “out.” Also, it’s important to just be faster to figure out a market trend then the next guy. This is done by having the both the best data analysis but also a knack for picking up trends. It’s a common for traders to believe in the fact that market scenarios repeat themselves in one way or another. The analysis of what happens in the market happens all the time but in order to be profitable, one has to hope to be right immediately.