Forex Hedge Funds and Currency Exchange
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Thread: Forex Hedge Funds and Currency Exchange

  1. #1
    I heard tale of a massive thing ($20 billion has been the amount I heard) that utilized forex hedge funds to perform fundamental currency exchange (EUR to USD and vice versa without attempting to exchange it) when required. I am left scratching my head. Can someone who has been in the industry as a huge player (calling you brokers or bank employees) help answer several questions?

    1) Why would anyone take this route rather than functioning together with their bank? Some reasons I've thought of could be that funds may get better rates by having the capability to store the trade or funds offer solitude etc..
    2) Hedge Funds typically require that funds be deposited with them along with the pulled from them. This means that pass the funds bank out and in. Does anyone know how they manage this? Do funds keep bank accounts in different currencies to manage deposits and withdrawals before the money goes to the broker? Or do prime brokers have the ability to take the money directly from the client bypassing the fund's bank and also also the need to apply exchange rates until you're ready to?
    3) Just how do amounts like this get handled? I realize the forex market is liquid but can this much be rid without matter? What exactly does it take and what sorts of brokers can manage it? That's a large amount of money (to me anyhow). Brokers never talk about account maximums.
    4) What kind of commission would be fair about some thing like this? Or rather what would the transaction that is fom be expected by this participant both in terms of commission and slippage? Typically hedge funds earn money but I imagine a deal like that woule be short term, not involve profit per se.


    To put this all another way, in case you're a hedge fund what do you have to have in place as infrastructure and then how can it work mechanically to deal with a $20bio currency exchange?

  2. #2
    You may want to read this: http://www.oracle.com/us/industries/...ces/045947.pdf

    Legit currency Hedge Funds are typically hoping to ch trends and are constantly on the lookout for currency correlations. The majority of them aren't trading for profit but for compensating hedges and balances . In currency markets whom I classify as Market Stage 7 or 1, most currency based hedge funds will algorithmically try to cling to a profile. These kinds of funds haven't seen particular stellar performance by their currency trading within the past 8 years.

    Austerity, has a lot to do with the lack luster performance because as central banks have intervened, rates happen to be relatively low and volatility relatively low as a result. Traders chase currencies typically as monetary policy push rates higher and currencies together. Following the 2008 global liquidity crisis and the consequent central bank rate lowering regimes that fell into position, we saw relative drops in volatility typically associated with a stronger rate change environment followed by price changes - that traders like to view in order to generate relative yields. You'll notice that FXC, that was the largest currency just finance was boarded-up after it could no longer increase its working funds to maintain its investors happy. The yields of Hedge Funds in general has been poor in the aggregate since 2008 and many have lost too much funds . Quite frankly, I really don't understand they do it - I just don't understand how a fund with that much price basis at its disposal, can't generate extraordinary returns. It blows my mind.

  3. #3
    Quote Originally Posted by ;
    I heard tale of a massive entity ($20 billion has been the number that I heard) that used Foreign Exchange hedge funds to execute fundamental currency exchange (EUR to USD and vice versa without attempting to exchange it) when required. I am left scratching my head for a number of factors. Can somebody who has been in the industry as a big player (calling you brokers or bank employees) help answer a few questions? 1) Why would someone take this course rather than working together with their bank? Some reasons I have thought of may be that capital may get better rates by having the capability to shop the...
    You won't receive an answer to your query here, since this forum filled with people that handling $100 rather than $20Billion.
    Judging on on your post it makes no sense to use extra middleman to perform fundamental conversion at these scale. Unless there's good cause of that and we don't understand about it or it's just another tale.

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