Momtchil Pojarliev
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Some Like It Hedged

BNP Asset Management's Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices, he says.

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January 1, 2013

Speak Up

By Tom Steinert-Threlkeld

Also in this article

  • Speak Up
  • Despite Rise of Computer Trading, the Phone Isn't Dead Yet

Where going back to using voice-putting a human in charge of the trade- really matters is when movements in markets matter, he said. For instance, if a firm places an order to sell a particular currency at $8.20, automated systems will wait until a bid arrives at $8.20. But the voice trader can work at $8.20 to clear part of the order, clear more at $8.19 and then see where prices start to move.

"At the end of the day," said Atkinson, "you will always get a better price if you go out via voice." Your counterparty "might show you a better bid order, a better offer. You can hit him or just say nothing there and move to another one."

But be careful how you approach that, Bacic said. You have to treat your counterparties, the liquidity providers, properly. And that typically means working with one provider on the full amount of a trade. Particularly a big trade.

"When people are not trading full amounts and when they are hitting simultaneously five or 10 platforms at the same time and things like that, (they) can harm a relationship in the long run," said Bacic. "You can get away with it once or twice, maybe even three times, but at the end you will lose the support from your liquidity providers. This is a big issue."

If you're working a large position, Atkinson said, you also need to let a liquidity provider-a foreign exchange bank-know if you are using a platform that aggregates prices from a wide variety of sources.

If the provider thinks "you'll only ever trade with him when he's the best price," you may see that provider start widening bids and offers presented to you, he said. Then, "you've actually lost liquidity from one of your preferred liquidity providers."

Sensitivity is required, Atkinson said. And, he notes, in a relationship maintained by that old voice technology, "there's always space for negotiation."


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