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Institutional Forex trading

Discussion in 'General Forex Talk' started by seedof, May 23, 2011.

  1. seedof

    seedof Corporal

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    Hi anyone here who knows how the institutional trading works,how they trade,those who trade for them,the type of trading they do,department responsible for the operation. Please if you know share it here. Thanks
     
  2. MichelAnge21

    MichelAnge21 Sergeant

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    Large banks need to exchange currencies constantly as a result of international trade. Imagine, for example, how much money Toyota need to repatriate in Japan each trimester. Sometimes, an exporter might decide to buy a large position on the options market to " freeze " a good exchange rate etc.

    Banks that exchange currencies all day long use spreads that are razor-thin. They do not really use leverage like the retail traders. They simply have a credit relationship between themselves. They do many trades and they settle their books together at some point. There are also hedge funds who speculate on large positions. Their traders are obscenely overpaid professionnals. A handful of Mammoth banks dominate the market. Most smaller banks simply pass their orders to the Big Ones.

    Retail traders can access the Interbank market only indirectly because brokers need to " bundle " our small contracts together before an institution will accept to be the counterparty. Of course, retail traders can also trade small lots between themselves. There can be many layers of intermediaries between " Us " and " Them "

    For every position, there is a counterparty. The one info that can be useful to the retail trader is " where do the Big Ones stand compared to us ? "
    Often times, retail traders will be on one side and institutions on the other side. That is the SSI: the speculative sentiment index. A SSI of 3 would mean that there are three times as many traders that are long than traders that are short. Since the value in dollars of the long and short is necessarily equal on both sides , that means retail traders are generally long and the Big Guys are generally short ( in this example ). Institutions are more often right than wrong in the short term. ( in other words, the short each hold a position that is on average 3 times as large as the long so the Big Ones have got to be on the short side, at least the majority of the Big Ones ).

    For traders here who believe marketers who promise a 20% monthly return with a 299 dollars EA, reflect that, if those robots worked, banks would nt bother paying 1 million/year to their traders. They d buy the EA for 299 and let it run...The only use banks have for some automated systems are " safety systems " that can liquidate positions faster than any human in case of abnormal market conditions.It s a kind of autopilot that removes the control from the human pilot because it detected that the plane will crash.

    If you plan a career with a large institution, you certainly need a degree in Finance. When you have your degree, you can go work for the Société Générale and blow 3 billion dollars of your employer s money like that french guy, Jérome Kerviel, did and you ll attain immediate fame.
     
    #2 MichelAnge21, May 23, 2011
    Last edited: May 23, 2011
  3. Pharaoh

    Pharaoh Colonel

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    Can I skip the degree in finance and go straight to losing $3 billion? ;)
     
  4. seedof

    seedof Corporal

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    @michelange21. Thanks for the info. So is it possible to know the side a big player could be at any point in time so to use it to one's advantage
     
  5. seedof

    seedof Corporal

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    How much is needed to enter the big players club and aside the finance degree requirement what other requirement is required to work for a big institution
     
  6. MichelAnge21

    MichelAnge21 Sergeant

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    There are no other requirements. Once you have your degree, you simply apply to be a junior trader at places like UBS or Société Générale.

    They simply wont give a large account at first. Traders are judged by their performance and most of their remuneration are bonuses based on results. If you re good, you go up the corporate ladder and you make a pile of money: if you re not performing, you stay stuck in a junior position trading some minor and obscure currency.

    Look at Kerviel s CV at Wikipedia for example to see how that shooting star managed his career. The son of a blacksmith. He got a Master s degree in Finance. Then he worked for a while in the back office of Société Générale ( that s how he learned how traders were supervised and he understood how to fool their system ) Then he became junior trader etc As you can see from the Wikipedia article, the program Kerviel tool at university was specifically tailored for becoming trader and he got hired fresh out of university.

    A question for future Trivial Pursuit: Kerviel was condemned by a French Court to repay the Société Générale 6.7 billion, all the money he lost fraudulently. How many years would he have to work at his former salary to achieve that ? Answer: 30 000 years.

    Let s hope Société Générale is not in a hurry...

    And why did Kerviel do that ? Because they are paid based on performance. A trader working for a french bank typically gets a 0.5% bonus on the profit he makes for the bank. Kerviel took crazy risks to increase his performance and he did not use hedging like they re supposed to do. Instead of winning, he was losing heavily and he managed to hide his losses for some time with his knowledge of the computer system in the back office.
     
    #6 MichelAnge21, May 26, 2011
    Last edited: May 26, 2011
  7. seedof

    seedof Corporal

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    Thanks michelange21 for the info though my discipline is mathematics science but i'll still try to get a degree in finance cos i'll love to work as a trader for a bank or any big institution.
    You could also share your knowledge on this question here http://forum.mt5.com/index.php?=7401 plus get monetary bonuses for your contributions which you could use in your trading account to trade
     
    #7 seedof, May 29, 2011
    Last edited: Jun 3, 2011
  8. Pharaoh

    Pharaoh Colonel

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    Whether you get the degree in finance or not, go ahead and start trading, at least on demo. Even a PhD in finance won't get you a job as a bank trader if you can't show some hints that you understand how to be a successful trader.

    If you are profitable enough, you might decide that it's better to trade your own money without the hassle and headaches of working for a bank to trade other people's money.
     

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