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Currency trading is the buying and selling of one currency for another at an agreed exchange rate. This is typically undertaken by currency traders to facilitate trade between foreign and domestic banks, companies and speculators (investors). A currency trader is a financial money market dealer who also provides currency pricing and relevant market information to his/her corporate base.
Literal Exchange
As Mark Devenish, a currency trader at the Westpac Bank in Sydney, explains:
''Let's say Max owns a computer shop and he's just imported $1 million dollars worth of equipment from a computer factory in the United States. The factory wants to be paid in US dollars. Max calls up his bank's currency trader and asks him to exchange his Australian dollars (AUD) into US dollars. At the current exchange rate of .50 (50 cents), Max sells AUD2million in return for the US equivalent of $US1million. This enables Max to pay his bill as requested.''
In addition, currency traders provide foreign exchange pricing to their domestic and offshore clients, informing them of currency moves and levels, along with keeping them constantly up to date with any relevant market news that may impact a particular currency.
One of the most critical roles of the currency trader is managing any currency risk that he/she has inherited. For example, if a client calls and needs to sell $10million Australian against the US dollar at the current market rate, the currency trader must then manage the $10million Australian. The choices available to the trader are:
1) exchange the currency there and then - also known as selling the position back out within the market place;
2) wait to exchange the currency, in the hope that the exchange rate will improve - also known as running the position.
For every one tenth of a cent that the exchange rate moves, this equates to a profit or loss to the trader. If the currency is volatile at the time, the rate can fluctuate over a cent very rapidly, thus affecting the profit or loss even more so.
As Mark says:
''We are not dealing with one or two thousand dollars. A normal market amount is between $1 and $10 million Australian dollars and in some cases can be in the hundreds of millions, so there's a high risk involved.''
When a trader runs a position, they are keeping a constant watch on currency charts. The charts are an invaluable trading tool that show levels of support and resistance for the currency and assists the trader in deciding when and where to cut a position.
Mark adds:
''When running a position you also have to be on the alert for any data that is due for release, be it a balance of payments number or employment figures, as this data can instantaneously impact the value of the currency.''
Mark says that his job is nothing short of stimulating and can be an adrenaline rush when managing very large positions but, as with anything, when the going's good it's good, but when it's bad...
Goodbye Paper and Metal - Hello Cyberspace
The currencies of most advanced and many developing economies are traded in the forex market. This, however, does not mean that currency traders send large amounts of currency from one country to another. Typically, it involves electronic balances that will be denominated in another country's currency. Currency traders complete their trades from a dealer room in commercial banks, for instance, using telephones and computers. The forex market enables currency traders to buy and sell foreign currency on behalf of companies, fund managers and banks.
You can generally expect to put in at least a 12 hour work day, longer during the lead up to events such as the Budget. A good understanding of how the forex market operates, and the ability to digest rapid change (currency prices literally change within seconds) are critical in this occupation.
There are currently few corporations that employ currency traders in Western Australia. Prospects are better interstate or overseas. The increasing automation of banking services, whereby it becomes increasingly possible to view currency prices from terminals located at banks, may diminish employment prospects for currency traders even in those locations.
The starting salary for new entrants into currency trading is approximately $40,000 per year and this may go as high as $70,000 for a junior dealer. Senior dealers can earn in the vicinity of $100,000 plus.
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