The currency market just got a lot bigger!
The currency market just got a lot bigger!
Thomas Fischer
•
MBA
•
38 years in financial services
•
Currency trader 1978-2000
•
Jyske Bank/JGAM 2000 -2013
•
Editor Currency Cross Trader
•
Consultant ENR Asset Management
•
Golf
•
Copenhagen Marathon 05 4:10
•
Copenhagen Marathon 07 4:08
The size of the FX Market 2013 • 5.3 Trillion US dollars every day! • US dollar 87% of all trades • UK (41%) & USA (19%) largest jurisdictions
Model Portfolio Theory • • • •
4
Diversification reduce unsystematic risk Best level of diversification – efficient frontier Global diversification – currency overlay Systematic risk cannot be diversified away.
US Efficient Frontier
5
Active Currency Overlay • • • •
6
Absolute return strategies Active Management seeking excess return (Alpha) Profitting from inefficiencies Allocating percentage to currency managers to get international exposure
Global Efficient Frontier Active Currency Overlay
7
Global Diversification • • • • •
8
Individual Stocks, Bonds & Currencies (no currency hedging) Global Funds (hedging within Fund) Regional Funds (hedging within Fund) Emerging Market Funds (hedging within Fund) Country Funds (hedging within Fund)
Purchasing-Power-Parity • • • •
9
Long term measurement based on inflation Fundamentals always right in the long run but…. Currency rates affected by short term traders Currency risk needs to be watched 24-7
Factors affecting currency rates
• • • •
10
Macroeconomic factors – GDP/Unemployment/Growth Interest rate differential Market trends – momentum/relative strength index Central banks
FX As An Asset Class –why currencies make sense in an uncertain climate
• • • • • • • •
24 hour trading Low spreads between buying/selling Liquid – daily volume $ 5+ Trillion (NYSE daily turnover $ 55 Billion) Many participants – difficult to manipulate markets Anonymous Trading Absolute returns Not correlating with other asset classes Even during the 2008 ”Meltdown” trading remain liquid
Returns in a Zero-Sum Market
• As the most liquid market in the world, shouldn’t currency markets be the most efficient, and so not offer consistent returns to investors? • AND • How can a zero-sum game (or a long-short market) such as currencies offer consistent returns to investors? Who are the systematic losers?
Liquidity-Seekers (or Non-Profit Seekers)
• International investors who buy bonds, equities, or credit, who either fully hedge their currency exposure, or do not hedge at all • Central banks who buy or sell currencies in order to maintain an exchange rate policy • Corporates who need to export, import or engage in FDI • Tourists
Profit-Seekers
• • • • •
Currency Managers Dedicated currency-only hedge funds Global macro hedge funds, who trade currencies as well as other markets Retail Traders (Trading platforms) Editor Currency Cross Trader
Analyzing Currencies like stocks • • • • • •
15
GDP Interest rates Employment rate FDI Sentiment Charts
EURO
• • • • •
11 member states introduced EUR January 1999 Notes and coins were launched on 1 January 2002 Today 17 member states 33% of all currency trades 27% of world foreign exchange reserves
Member States using Euro • • • • • • • • • • • • • • • • •
Belgium Germany Estonia Ireland Greece Spain France Italy Cyprus Luxembourg Malta The Netherlands Austria Portugal Slovenia Slovakia Finland
Euro Statistics
• • • • •
GDP: Population: Government debt: Unemployment: 10 year bond:
12,4 trillion USD (17 countries) 332 million (17 countries) 85% of GDP 12.1% 1.76%
Eurozone alphabet soup!
ECB alphabet soup - explained! • EFSF = European Financial Stability Facility created 2010 EUR 440 Billion • EFSM = European Financial Stabilisation Mechanism created 2010 – EUR 60 billion • SMP = Securities Markets Programme – ECB purchase in secondary bond markets – discontinued 2012 now OMT • ESM = European Stability Mechanism created 2012 EUR 500 Billion • LTRO = Long-Term Refinancing Operations existed since 1999 but Mario Draghi introduced 3 year lending in 2011 EUR 489 Billion in 2012 EUR 529 Billion • OMT = Outright Monetary Transacions 2012 – ECB purchase secondary sovereign bond markets
The EURO Source: BCA
USD
• • • • •
GDP 15, 6 trillion Population 316 million 50 states 87% of all currency trades 63% of World foreign exchange reserves
USD Statistics
• • • • •
GDP: Population: National debt of GDP: Unemployment: 10 year Government bond
15,720,000,000 316 million 100% 7.30% 2.62%
EUR/USD
Source: Jyske Markets
• • • • •
All time high: All time low: Average since introduction: Current: Daily turnover:
1.6038 (07/18/08) 0.8230 (10/26/00) 1.2024 1.3450 1.3 trillion
Currency Cross Trader • • • • • •
Research and input from trading room Friday Updates Frequent trade recommendations Targets identified Leverage suggestions Visit The Sovereign Society booth
Thomas Contact Details
• • • •
[email protected] [email protected] 011-45-3880 0011 011-45-2526 9239
Thomas Fischer
•
MBA
•
38 years in financial services
•
Currency trader 1978-2000
•
Jyske Bank/JGAM 2000 -2013
•
Editor Currency Cross Trader
•
Consultant ENR Asset Management
•
Golf
•
Copenhagen Marathon 05 4:10
•
Copenhagen Marathon 07 4:08
The size of the FX Market 2013 • 5.3 Trillion US dollars every day! • US dollar 87% of all trades • UK (41%) & USA (19%) largest jurisdictions
Model Portfolio Theory • • • •
4
Diversification reduce unsystematic risk Best level of diversification – efficient frontier Global diversification – currency overlay Systematic risk cannot be diversified away.
US Efficient Frontier
5
Active Currency Overlay • • • •
6
Absolute return strategies Active Management seeking excess return (Alpha) Profitting from inefficiencies Allocating percentage to currency managers to get international exposure
Global Efficient Frontier Active Currency Overlay
7
Global Diversification • • • • •
8
Individual Stocks, Bonds & Currencies (no currency hedging) Global Funds (hedging within Fund) Regional Funds (hedging within Fund) Emerging Market Funds (hedging within Fund) Country Funds (hedging within Fund)
Purchasing-Power-Parity • • • •
9
Long term measurement based on inflation Fundamentals always right in the long run but…. Currency rates affected by short term traders Currency risk needs to be watched 24-7
Factors affecting currency rates
• • • •
10
Macroeconomic factors – GDP/Unemployment/Growth Interest rate differential Market trends – momentum/relative strength index Central banks
FX As An Asset Class –why currencies make sense in an uncertain climate
• • • • • • • •
24 hour trading Low spreads between buying/selling Liquid – daily volume $ 5+ Trillion (NYSE daily turnover $ 55 Billion) Many participants – difficult to manipulate markets Anonymous Trading Absolute returns Not correlating with other asset classes Even during the 2008 ”Meltdown” trading remain liquid
Returns in a Zero-Sum Market
• As the most liquid market in the world, shouldn’t currency markets be the most efficient, and so not offer consistent returns to investors? • AND • How can a zero-sum game (or a long-short market) such as currencies offer consistent returns to investors? Who are the systematic losers?
Liquidity-Seekers (or Non-Profit Seekers)
• International investors who buy bonds, equities, or credit, who either fully hedge their currency exposure, or do not hedge at all • Central banks who buy or sell currencies in order to maintain an exchange rate policy • Corporates who need to export, import or engage in FDI • Tourists
Profit-Seekers
• • • • •
Currency Managers Dedicated currency-only hedge funds Global macro hedge funds, who trade currencies as well as other markets Retail Traders (Trading platforms) Editor Currency Cross Trader
Analyzing Currencies like stocks • • • • • •
15
GDP Interest rates Employment rate FDI Sentiment Charts
EURO
• • • • •
11 member states introduced EUR January 1999 Notes and coins were launched on 1 January 2002 Today 17 member states 33% of all currency trades 27% of world foreign exchange reserves
Member States using Euro • • • • • • • • • • • • • • • • •
Belgium Germany Estonia Ireland Greece Spain France Italy Cyprus Luxembourg Malta The Netherlands Austria Portugal Slovenia Slovakia Finland
Euro Statistics
• • • • •
GDP: Population: Government debt: Unemployment: 10 year bond:
12,4 trillion USD (17 countries) 332 million (17 countries) 85% of GDP 12.1% 1.76%
Eurozone alphabet soup!
ECB alphabet soup - explained! • EFSF = European Financial Stability Facility created 2010 EUR 440 Billion • EFSM = European Financial Stabilisation Mechanism created 2010 – EUR 60 billion • SMP = Securities Markets Programme – ECB purchase in secondary bond markets – discontinued 2012 now OMT • ESM = European Stability Mechanism created 2012 EUR 500 Billion • LTRO = Long-Term Refinancing Operations existed since 1999 but Mario Draghi introduced 3 year lending in 2011 EUR 489 Billion in 2012 EUR 529 Billion • OMT = Outright Monetary Transacions 2012 – ECB purchase secondary sovereign bond markets
The EURO Source: BCA
USD
• • • • •
GDP 15, 6 trillion Population 316 million 50 states 87% of all currency trades 63% of World foreign exchange reserves
USD Statistics
• • • • •
GDP: Population: National debt of GDP: Unemployment: 10 year Government bond
15,720,000,000 316 million 100% 7.30% 2.62%
EUR/USD
Source: Jyske Markets
• • • • •
All time high: All time low: Average since introduction: Current: Daily turnover:
1.6038 (07/18/08) 0.8230 (10/26/00) 1.2024 1.3450 1.3 trillion
Currency Cross Trader • • • • • •
Research and input from trading room Friday Updates Frequent trade recommendations Targets identified Leverage suggestions Visit The Sovereign Society booth
Thomas Contact Details
• • • •
[email protected] [email protected] 011-45-3880 0011 011-45-2526 9239
