Currency

Overview

Although the FX market is the largest financial market in the world with a daily average turnover of approximately US $1.5 trillion, a surge in volume and enormous growth has also taken place in the currency futures markets as institutions are accessing different venues of FX liquidity.

By utilizing our high-end institutional trading systems and front-end solutions, exporters, importers, hedge funds, non-banking institutions and speculators alike can take advantage of this alternative venue of FX liquidity and use the currency futures markets to manage foreign exchange risk, gain price improvement on trades, achieve lower trading costs and conduct their cross-border transactions more efficiently and securely.

As world currencies increase or decrease in relation to other currencies, a multitude of economic & political forces affect the international currency markets such as: political stability, economic climate (depressions, recessions and expansions), central bank or government intervention, changes in interest rates, money supply growth and inflation. By using our advanced front-end trading systems, our clients can have a competitive edge against many factors that contribute to foreign exchange risk:

  • Floating Exchange Rates: In a floating exchange rate environment, the exchange rate responds to the flow of imports and exports, the flow of capital, relative inflation rates and more. Often, limits are placed on exchange rate fluctuations according to government policies.
  • Merchandise Trade Balance: One factor affecting the exchange rate between currencies is the merchandise trade balance. This is the net difference between the value of merchandise being exported and imported into a particular country. For example, the net difference between the Canadian demand for US dollars to buy American merchandise, and the supply of Canadian dollars affected by the Americans' purchase of Canadian merchandise, is the merchandise trade balance between the two countries.
  • Flow of funds to pay for stocks and bonds: The flow of funds between countries to pay for stocks and bonds also affects the currency exchange rate between countries. However, in the near term, capital flows are greatly influenced by yield differentials.
  • Yield differentials and their affect on currency values: Yield differentials are the difference between interest rates in various countries and how it affects currency values. All else being equal it stands to reason that a higher yield on German securities (compared to American securities) would make German securities more attractive. What's more, an increase in German yields would raise the flow of U.S. dollars into German securities, and decrease the outflow of Deutsche marks to American securities. This increased flow of funds into Germany would lower the value of the U.S. dollar and increase the value of the Deutsche mark. Hence, the Deutsche mark to U.S. dollar ratio, as it is represented in the foreign exchange market, would potentially decrease.
  • Rate of inflation: Consumers try to avoid the eroding effect inflation has on their purchasing power. Consequently, goods from countries with a low inflation rate become more attractive than the goods from countries with higher inflation. In turn, the currency from the lower inflation country rises in value, while the currency from the higher inflation country falls in value. Both the inflation factor and the purchasing power of the currencies directly impact currency exchange rates. For example, if the United States is experiencing lower inflation than its trading partner Germany, the EURO/USD ratio would rise to reflect the growing price level in Germany relative to the United States. This factor is rooted in the concept of purchasing power parity. It holds that, over the long run, a currency exchange rate adjusts to reflect the difference in price levels between countries.

Whether you are an exporter, importer, hedge fund, global fund manager, non-banking institutions, government agency or a speculator, QuikSilver can provide you with access to the world's most important electronic and pit-traded currency futures products:

  • Euro Dollar
  • Japanese Yen
  • British Pound
  • Australian Dollar
  • Swiss Franc
  • Canadian Dollar
  • South African Rand
  • Hungarian Forint
  • Mexican Peso
  • Polish Zloty
  • Czech Koruna
  • Brazilian Real
  • Swedish Krona

Advantages

The Advantages of trading currency futures:

  • Diversification: Currency futures can provide investors with a well-balanced portfolio through diversification and low systematic risk. Price fluctuations in currency futures have very low correlations with price movements in stock market values and interest rates. This lack of any systematic relationship can lower portfolio risk when the equities and interest rates are in a depressed state.
  • 24-Hour Trading: Currency futures trade nearly 24-hours a day in the CME Globex market or open out-cry trading pits.
  • Highly Liquid: Investors can enter the currency futures markets and exit positions efficiently, as they are one of the largest and most liquid markets in the world. Currency futures markets can absorb trading volume and transaction sizes that dwarf the capacity of many of the world’s equities markets.