Forex currency traders are people who buy, sell and trade foreign currencies on behalf of large financial institutions like investment banks, commercial banks and central banks. You can even find currency trader jobs in multinational corporations that conduct foreign trade. They are also employed in investment firms like hedge funds or asset management funds. Currency trader jobs are for the most highly skilled professionals in the financial industry.
Forex Currency Traders are Rock Stars
Forex traders, are the rock stars of the financial world and currency trader jobs are accordingly one of the most coveted jobs in the industry. The profitability of large investment banks like Morgan Stanley, J.P. Morgan and Merrill Lynch often hinge on this relatively small group of individuals. For example, when Goldman Sachs first became profitable far beyond analysts expectations after the financial bailout of 2008, they attributed their profitability to their currency trading division.
A small group of individuals made literally billions of dollars for a single firm. These guys are the highest caliber employees of their firms and often treated as such. They are extremely intelligent, very quick thinkers, and can process large amounts of complex data to make positive trading decisions.
The Forex Market
The world of currency trading is by far the biggest in the world. An estimated $3.21 trillion are traded daily on the forex market. This makes this financial market not only the largest, but also the most liquid. This also means firms will place their best people in currency trader jobs. In addition, those who decide to be self-employed currency traders and trade from home have to also be of the highest caliber of traders.
Because the forex market is so large, it makes it virtually impossible for forex traders to manipulate the market like in other markets. For example, if a trader in the New York Stock Exchange wants to manipulate the price of a certain stock, which happens everyday, one strategy they might employ is to buy large amounts of that stock over a short period of time, pumping tons of cash into that stock and thereby creating an upward trend. This will cause other investors and traders to identify this trend and want to ride it’s wave. The forex trader will discontinue pumping money in that stock, but the stock will continue to rise because now other traders are investing in it. Then, when it reaches a certain point in the price, the initial trader can just sell, sending that stock into a downward spiral but having sold it at a high price than they bought it.
A trading strategy like this to manipulate the price would not work in the forex market. In order for the price of a currency to shift, there has to be a major factor, and almost never can a single trader make a difference in that movement. That is why forex traders are the most intelligent and highly skilled people in them, because they cannot use guerrilla tactics like this to be successful. The only institutions that really do move the forex market is the central banks around the world. If the US Federal Reserve announce they will cut interest rates, that will certainly move the currency market. But beyond this, individual traders cannot manipulate the forex market. That is why those employed in currency trader jobs have the highest proficiency in really understanding how economic and market forces work.
Qualifications of a Forex Trader
Those employed in this field are the highest of caliber in the professional world. They are highly skilled, highly trained and highly motivated. They see the challenges as well as the great rewards of becoming a successful forex currency trader and they rise up to that challenge and opportunity.
Many large investment banks recruit their traders from Ivy League Universities or other highly selective schools like Duke University, Chicago University or Northwestern University. They prefer those with a background in business, finance, mathematics or any area that involves quantitative analysis and analytical thinking.
A Day in the Life
Currency trading will look differently based on where it happens. Some traders are speculators, i.e. they do it for profit, and others do it to hedge risk for their company or their investments.
Those who trade for profit will most likely found in investment banks and most hedge funds. They try to predict where foreign currency values will be and try to make a profit. They will do the old adage of buying low and selling high. The return on investment on currency trading can be so high that many investment banks will actually sell securities that offer less of a return to raise money for trading in the foreign currency market. For example, an investment bank will sell money market securities that offer people 1-3% return to raise capital to fund currency trading that can offer a 10-500% return.
Some traders will trade foreign currencies on behalf of their companies to hedge risk as well. Many multinational corporations who engage actively in foreign trade are highly vulnerable to currency fluctuations. In order to hedge against this risk variant, many corporations will employ currency traders to offset their risks as they engage in foreign trade. For example, if an American corporation has major business interests that sell their products or services in Australia, how much revenue and profit they make from the Australian market will depend largely in how the currency values against another, say the United States Dollar or USD. If the Australian Dollar or AUD, gets weaker compared to the USD, than this corporation loses it’s revenue and profits even though they may be selling the same amount.
That same can occur on the cost side as well. If an American company is manufacturing it’s goods in China, the exchange rate between the Yuan and the USD plays an important part of the business equation. If the Yuan stays cheap compared to the USD, it will be cheaper to manufacture goods there. if the value goes up, it will cost more to produce and manufacturers might look elsewhere for their manufacturing needs. Forex currency traders keep an eye on situations like this and will trade currencies and other derivative financial securities to hedge against this risk.
On a daily basis, currency trader will constantly monitor all the different variables and inputs that go into moving the forex market. That means they will know how to analyze different political and social events around the world, which means they stay closely abreast to world news. They also have to process a complex matrix of financial and economic data to inform their trading decisions. So they are always looking at numbers and data sets and coming up with a trading strategy based on those figures.
Again, currency trading is very stressful and is associated with a lot of pressurized situations. Currency traders who are successful know how to handle pressure, make quality decisions under pressure and rake in the big bucks. That’s why people call them rock stars.