eFinancialCareers

Definition and Trends
The foreign exchange (Forex or FX) market involves converting one currency into another and predicting changes in exchange rates based on global events. FX salespeople and traders aim to profit from currency-price fluctuations.

Anyone who has lost money by buying a foreign currency before going on vacation, only to find its value falls before they arrive and spend it, will appreciate the need to keep an eye on the value of currencies. Banks and their clients face a similar problem but to a much greater degree. If you’re a U.S.-based company that owns hundreds of millions, or even billions, of euros, you stand to lose hugely if the euro drops even minutely against the dollar.

Working in foreign exchange means predicting whether one currency will fall (depreciate) or rise (appreciate) against another. If depreciation is forecast, salespeople and traders will advise clients to sell that currency and buy the one that’s appreciating instead. It’s a simple variant of the “buy low, sell high” maxim of financial markets.

The trading of currencies themselves is known as the spot market. However, a lot of the products bought and sold in foreign exchange markets are not actual currencies themselves but bets on the future direction of foreign exchange price movements known as futures. Futures fall into a class of assets called derivatives: contracts whose value is based on the performance of an underlying financial asset, index, or other investment.

The big story in FX markets over the last few years has been the weakness of the dollar, which lost ground consistently against the euro from mid-2002 to March 2005. Since then, the dollar has been regaining lost ground as the U.S. Federal Reserve raised interest rates, making it more attractive for international investors to hold dollars, but it’s uncertain whether or not this trend will continue, especially during the seasonal year-end dollar weakness.

Roles and Career Paths
Roles in the world of foreign exchange are much the same as in the sales, trading and research area, with the qualification that you will be trading currencies and their derivatives instead of corporate and government bonds and equity products.

FX trading jobs are usually split between vanilla trading, where products are simple and trades are easy to execute, and more complex, exotic derivatives trading. Sales jobs in foreign exchange (as in other product areas) are usually divided between different client types, with some salespeople specializing in hedge funds and others selling only to companies.

Researchers produce written reports used by the salespeople to keep clients informed of what’s happening in the FX markets. If you work with FX derivatives, you could also become a structurer, assembling complex exotic derivative products for clients.

Skills and Qualities

• Understanding of geopolitical events and macroeconomics
• Quick thinking with a good awareness of how markets work
• For FX derivatives: reasonably strong math aptitude
• For structurers: patience and communications skills