eFinancialCareers

A career for world news junkies.

An Australian company that sells its products to the US or in US dollars, as most resource companies do, stands to lose a lot if the currency drops even minutely against the Australian dollar.

Working in foreign exchange (FX) is about predicting the likelihood of one currency falling (depreciating) or rising (appreciating) against another. If a depreciation is deemed likely, the bank will advise its clients to sell and will itself sell that currency and buy the one that’s appreciating.

To complicate matters, a lot of the products bought and sold in foreign exchange markets are not actual currencies, but bets on the future direction of foreign exchange price movements, or so-called futures.

FX is booming in Asia. “We are expanding into Asia and recruiting for it,” says Andrew Mitchell, senior FX trader at ANZ. “Asian graduates of Australian universities have language skills, local knowledge and contacts to complement our local hires in the region.”

Trends

The Australian dollar floated as a tradable currency in December 1983, and is now one of the most heavily traded in the world. The Reserve Bank of Australia says the AU$/US$ is the fourth most traded currency pair and the Australian dollar the sixth most traded currency. Australian FX turnover in all currencies averaged US$170bn a day in April 2007, 65% up on the Bank for International Settlements’ previous survey in 2004.

The currency has fluctuated wildly, hitting parity with the US dollar in the 1980s, a low of 48 cents against the US dollar in late 2003, heading for parity again in 2007, and reaching US94c in February 2008.

The biggest trends in recent years include the rising share of activity in the swaps market, the increasing share of activity accounted for by global banks, the rise of electronic broking, and declining margins.

Robert Rennie, chief currency strategist for Westpac, says the job of an FX trader has changed radically in the process: “Electronic trading, e-tools and algorithmic trades have just about killed off the old-fashioned trader. Computers take a particle of a second to make a decision, and it’s possibly a more intelligent decision than I’d make.”

Key players

Where the Australian market was traditionally dominated by the Big Four local banks – Commonwealth Bank, ANZ, Westpac and National Australia – global banks have pushed strongly into the field. “Customers who used to deal with the Big Four now face an even wider choice of providers, who may differentiate themselves through price, service, speed or connectivity,” Mitchell says.

Royal Bank of Scotland, BNP Paribas and Calyon have all entered the game, and compete with Macquarie Bank, UBS, JPMorgan Chase, Goldman Sachs, Citibank and Deutsche Bank. Other niche players, targetting the travel, small business or high-net-worth individual markets, include Travelex, Amex and OzForex.

Roles and career paths

Roles in the world of foreign exchange are similar to those in sales, trading and research, except that you will be trading currencies and their derivatives. 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.

If you want to be an FX trader, it’s common to start out in operations or trade support, says Melissa Tal at recruitment firm Michael Page.

As in other product areas, sales jobs in FX are usually divided between different client types, with some sales people specializing in hedge funds, while others might only sell to companies.

FX researchers produce written reports that are used by sales people to keep clients informed of what’s happening in the FX markets. FX structurers assemble complex exotic derivative products for clients.

Pay

If you work with FX products, you have the potential to become very rich, particularly if exotic (ie, non-standard) FX derivatives are your chosen area.

A junior FX trader in an investment bank can expect to earn AU$50k-AU$70k, plus a bonus of around 100%, says Tal.

Lee Rochester at recruiter Futurestep says basic pay rises to AU$100k- AU$120k after four to five years' experience, and to more than AU$150k for managers. “Rates are much higher in investment banks than retail banks, and proprietary traders can make heaps,” he says.

Skills

• Programming As electronic trading has become more important, so have IT skills. “People entering FX trading must be more numerate than in the past,” says Rennie. “It’s vital that they hone their programming and spreadsheet skills.”

• Information processing Rochester says it takes a certain kind of person to become an FX trader. “They need to be extremely smart, and be able to assimilate huge amounts of information in a split second. They have to be very, very clever. They don’t need the softer skills that relationship, client-facing roles call for. It demands instant, quick reflexes, so analytical, reflective types aren’t suited to it at all.”

• Maths Traders (and not just in FX) need to have a strong affinity for maths, says Jonathan Barratt at broking house Commodity Broking. “You need to have numbers in your head, and to have a feel, a sense of the market. You need to know where that market is and how to use it to make money. It’s instant gratification. Someone gives you AU$100m: you have to get it out there instantly, and in a way that will make the bank money.”