Foreign Exchange Markets Masterclass
Location: Prague, NH Hotel Prague
Lecturer: Mark Taylor
Attend this 2-day training course and learn about:
The size and scope of the world's largest financial market place
The spectrum of FX products - from spot trades to exotic options
How the market works and how orders are executed
Why FX rates move and what drives them
How banks operate in the FX market - the role of the market maker
Investing in FX - forming a view, executing trades, using stop-loss and take-profit orders, investing with options
How companies encounter FX risk and how to hedge against it
Executing the corporate hedge - making the decision, choosing the right product, dealing with banks
This 2-day course offers a detailed analysis of the Foreign Exchange market place, the products that trade within it, and how it is used by traders, investors and companies.
On day one, we start with the basics of FX - how are the rates quoted, what drives movements in the price, what are the products? We then look at trading and investing in FX. From a trading perspective we examine what happens within banks and the role of the market maker, looking at how banks operate profitably in the FX market. Next, we look at the investment aspect of FX. How do investors form a view on a currency pair? How do they execute the trades and manage their exposure through limit orders? We look at how including options in your investment approach allow the formation of a more bespoke view on the market. We also look at the downsides of investing with options, including exotics.
On day two we move our focus to the company. We analyse how companies encounter FX risk through transaction and translation effects, using real company accounts as our evidence. We look at the variety of hedging approaches available and assess the pros and cons of each. We examine the hedging decision making process - how do real companies make these decisions? And we also look at the process of interacting with banks - what's the process, what are the rules, and what do they get out of it?
The course finishes with a series of case studies examining both the investment and hedging aspects covered during the two days.
Who should attend?
Bank traders, salespeople, structurers
Bank market risk managers, middle office and operations professionals
Investors - institutional investors, fund managers, private traders
Company treasury managers and staff, accountants, risk managers
The course consists of classroom-based training which combines formal teaching of concepts and technical content, with individual and group exercises to reinforce learning points.
09.00 - 09.10 Welcome and Introduction
09.10 - 12.30 FX Market Overview and Products
Spot FX - the market for immediate delivery
How big is the Spot FX market? Who are the participants? What are their motivations?
What moves the price?
How important are trade flows and speculative flows?
The role of interest rate differentials and interest rate parity
Purchasing power parity and current account balances
Currencies that are linked to commodity prices
How and why do central banks intervene in the FX market?
How to execute Spot FX trades
Understanding the bid-offer spread
Execution for the retail trader - Spot FX brokers, CFDs
Execution for the bank trader - electronic trading systems, interbank voice broking
Execution for the investor/corporate treasurer - market makers, e-commerce platforms
Forward FX - the market for future delivery
What is the rationale behind the Forward FX market?
How are Forward FX prices quoted?
Analysis of the pricing of Forward FX
'Cash and carry' forward pricing
Is the Forward FX price a prediction of the future or merely a mathematical result?
Pricing long-dated Forward FX
Executing Forward FX trades
Understanding the 'forward points' quoting system
Fixing the spot reference for outright forward dealing
Adding a Spot FX and Forward FX trade together - the 'FX Swap'
Applications of FX swaps
The FX options market
Understanding how options work
The 'right but not the obligation' - how do we choose whether to exercise our right?
Analysis of payoff profiles and option combinations. What is put-call parity and why is it important?
Using FX options to express a view on the market or hedge a risk exposure
Intuitive understanding of option pricing
From binomial pricing to the Black-Scholes formula
Executing FX option trades
How is the price quoted? Who makes the market?
Understanding FX volatility
What is volatility? How do we measure it?
What is meant by 'volatility smile and skew'
How to calculate historical volatility
Introduction to exotic options
Barrier options and digitals
How do we use and execute exotic FX options?
12.30 - 13.30 Lunch
13.30 - 17.00 FX Trading and Investing
FX trading within banks - the market maker
How do market makers make prices?
How do market makers manage their portfolios?
What determines the width of the bid/offer spread?
Discussion of market making in liquid and illiquid markets
FX markets for investors
What do investors look for from the FX market?
What are the differences from other asset classes?
Developing a view on a currency pair
Different views - up, down, neutral, range-bound, break-outs, trends
Designing a strategy to fit the view - choosing the right product
Carry trade analysis
Does your view benefit from high or low volatility?
Executing your view
Dealing with market makers
Trade size and the bid/offer spread
Order types in the FX market
Using take-profit and stop-loss limits to manage risk
Investing using options
What do options offer the FX investor?
How to tailor option combinations to benefit a more specific view
Using relative value opportunities in volatility to enhance investment outcomes
Trading FX options
Executing FX option trades on a 'vol price'
Introduction to option risk management
Using and understanding the volatility smile
Why does volatility change with expiry date?
Using exotic FX products
Using exotic options to express an investment view
Pros and cons of using exotics for investors
Using barrier and digital options to take a more specific view
Investing with more complex exotics - Autocallables, TARFs
How does the trading of exotics affect underlying FX markets?
09.00 - 12.30 FX Risk Management in Banks and Corporate Treasuries
How does FX risk arise with a company?
Understanding the implicit risk position of the company
The hedging decision
How much to hedge?
Specific cash flow hedges versus rolling hedges
How does the typical company make the hedging decision?
Comparing to peers, does it matter what they do?
Hedging contingent exposures
What are contingent exposures
How can we hedge a risk that is not market-related?
What products do banks provide to help companies with contingent hedging?
How does the bank manage the contingent risk?
Hedging with spot and forward FX
One-off or repeated trades
'Flat' forward rate contracts for repeated trades - how do they work?
Cross-currency swaps - how do they work? How do they differ from FX Forwards?
Hedging with vanilla FX options
Buy options as insurance
Using collars and participating forwards
Selling 'covered' options
Using more complex structures
Quanto products - changing the payment/reference currency