How Do Hedge Funds Route Their Trades?

[SAMMYFX]

A friend asked me the following question which I do not really have an answer to.

How does a Hedge Fund with a capital of say $300 million dollars route it's trade. Do they deposit millions with forex brokers or what?

Considering that most forex brokers out there are not sincere and honest in their deals how will a hedge fund trade millions of bucks through them or is there another way they really do it?

 

[Pharaoh]

Some of the bigger brokers offer Institutional Accounts. Some banks that don't offer retail forex also have institutional forex accounts.

Either that, or they go down to money changing booth at the nearest international airport.

 

[RahmanSL]

The mechanics of money changers is quite mysterious & complicated dating far back when money is used for trade transactions in place of barter trading.

Way back in those early days, Arabian & Indian money changers were able to get their money exchange rates up to the day and the end/money users still haven't figured out how they managed to do that, especially without telegraph, telephone, and internet....and traveling time was measured by horse/camel days and moon day.

Through the ages, the bulk of money changing business was taken over by banks/institutions. These banks/institutions hedged their funds/business with profits derived from the difference in money exchange rates...i.e Buy form client RM3.01 for USD1.00 and sell RM3.20 for USD1.00. They make RM0.18 for every USD1.00 transected.
But if the currency traded (for example the RM) were to be drastically devalued overnight, then the bank/institution would loss money. But this is not likely as the bank/institution will know in advance of that happening.

It is a well known fact that you can get better money exchange rates from money changers operating from street/shop than from banks/institution, and in my part of the world, the majority of these type of money changers are of Indian/Pakistan race.

 

[Pharaoh]

Yeah, unofficial money changers can be your best friend or your worst nightmare. Some are very reliable and have much better spreads than banks. Those airport ones charge an arm and a leg. The danger of the unofficial ones is that there are a few who aren't in it for the long haul. Those will try to give you fake bills.

If you are going to be in another country for an extended period, ask some of your fellow foreign visitors who've been there awhile for recommendations. Whenever I'm in China, I use one that was recommended to me years ago by a South African expat. They have great rates, have never given me a fake bill, and have a wide selection of currencies available. Without the recommendation, I'd have never found them. The shop is a clothing store in a mall, and there's no sign that they do currency exchange. You just have to know to walk to the back desk, pull out your money, and tell them what you want to change it to.

In Hong Kong, the shopping districts are full of little money exchange booths. They usually have their rates posted for major currencies, and it's well worth taking a few minutes to compare the rates.

 

[SAMMYFX]

Grateful for your replies!