Trading on the world's biggest market

What's working in foreign exchange all about? Lucy Mair speaks to FX trader at Barclays Capital, Hicham Sanhaji, to find out

The key facts

What is the foreign exchange market?

The foreign exchange (FX) market is a global marketplace where currencies are traded across financial centres around the world. It's an over-the-counter market, which means that participants trade with each other directly via computer networks rather than on one common market like the stock exchange. The FX market is the largest and most liquid financial market in the world, with an average daily turnover of $4 trillion. Trading takes place globally on a 24-hour basis, but the majority of FX transactions are executed in London.

Who trades currencies and why do they do so?

Currencies need to be exchanged for international trade to take place, so some of the main participants in the market are multinational corporations who need access to foreign currencies to conduct business around the world.

Investment funds and hedge funds also participate in the FX market to seek returns for their investors by buying and selling foreign assets in order to take advantage of fluctuating exchange rates.

Central banks play a major role in FX too, because they monitor the supply of their national currency in the market to control demand, liquidity and the level of inflation in their country.

How are currencies traded?

There are two main ways of trading in FX. The first is to trade cash products on the spot market, where volumes of currencies are instantly bought and sold at their current market price. The second is to trade derivatives and structured products, which allow participants to control their risks in the market.

My team and I manage the derivative contracts that the bank writes with clients. We also market FX index products, which are baskets of different currencies used by financial institutions and corporates as part of their investment strategies.

The big issues

What factors cause the price of a currency to fluctuate?

A change in the value of a currency is called a spot movement. Spot movements are driven by a number of factors including the levels of supply and demand of the currency, interest rates, economic performance, political situations, and the thoughts and predictions of those who express their views on the market.

What is affecting the FX market at the moment?

Recently, the sovereign debt crisis in the eurozone has been the main driver of the FX market and we're seeing what we call a "high volatility regime", which means that there are big market movements in very short time periods. Due to concerns about the economic and political stability of the eurozone, market participants are trying to limit their exposure to risk by selling euros in large quantities and buying "safe haven" currencies, such as the US dollar, Swiss franc and Japanese yen. As a result, we're also seeing central banks intervening in the FX market on a large scale. The rush on the Swiss franc last year, for example, pushed up the value of the currency, making Swiss exports more expensive. These events prompted the Swiss National Bank to protect the country's businesses by intervening in the FX market and pegging the franc to the euro to devalue it.

The job

How did you join FX at Barclays Capital, and how has your role changed since you started?

I studied statistics, probability and finance in Paris and, after graduating with a masters in 2010, I did a six-month internship with the FX correlation desk at Barclays Capital in London. I was then offered a place on the graduate programme, and started in 2011.

When I first joined the bank as an intern I had a lot to learn. I spent time working on projects for the team, such as testing new mathematical models that are used to price our trades and doing some market analysis. During this time I had the opportunity to ask lots of questions, get to know the financial products that I'm now working with, learn how to use the trading systems, and build up my experience.

Now I'm in a position of responsibility where I monitor the risks in the market and execute transactions for customers. My team is split between London, Singapore and New York, so when I start work in the morning the first thing I do is catch up with my colleague in Singapore on what's happened overnight and pick up the books from him, which are records of our transactions and exposure in the FX market. I then review my data feeds, consider where the risks are in the market, and develop my strategy. Throughout the day I communicate a lot with the sales and structuring desks to find investments for their clients and price trades for them, and I also execute transactions to hedge our exposures, that is, to protect the bank against risks.

What do you enjoy about FX?

Working in FX is incredibly interesting because you have to understand macroeconomic issues and closely follow the actions of global central banks to anticipate how they will affect the market. What's more, there's always the opportunity to learn and develop your knowledge of the world's economies, whether they are emerging markets or mature G10 nations. I also enjoy being challenged and, because the FX market is open 24 hours a day, everything is constantly changing and there are always new issues to confront. The job can be difficult, because we usually work 12 hours days and you have to be very focused and accurate throughout that time, but I find it exciting and engaging.

Do you have any advice for students who're interested in working in FX?

I'd highly recommend doing an internship before you commit to a full-time position because it gives you an opportunity to experience what the job involves. To be successful in FX, I think you need to be curious, have an appetite for learning and be prepared to ask lots of questions at the beginning. Finally, in FX you can't expect to come into work and go through the same routine every day - you need to be prepared to wake up early in the morning, adapt to the conditions in the market, and spend a long period of time concentrating and working very precisely.