I heard tale of a large entity ($20 billion was the number I heard) that used forex hedge funds to perform basic currency exchange (EUR to USD and vice versa without trying to trade it) when needed. I am left scratching my head for a number of reasons. Can someone who has been in the business as a big player (calling you brokers or bank employees) help answer a few questions?
1) Why would someone take this route as opposed to working with their bank? Some reasons I've thought of might be that funds may get better rates by being able to "shop" the trade or that funds offer privacy etc.
2) Hedge Funds typically require that funds be deposited with them and the withdrawn from them. This means that pass through the funds bank both in and out. Does anyone know how they manage this? Do funds keep multiple bank accounts in different currencies to handle deposits and withdrawals before the money goes on to the prime broker? Or do prime brokers have the ability to take the funds directly from the client thus bypassing the fund's bank and the need to apply exchange rates before you are ready to?
3) How exactly do amounts like this get handled? I realize the forex market is liquid but can this much really be cleared without much issue? What does it take and what kinds of brokers can handle it? That is a large amount of money (to me anyway). Brokers never talk about account maximums.
4) What kind of commission would be fair on something like this? Or rather what would this player expect fom the transaction both in terms of slippage and commission? Typically hedge funds make money from the 2&20 but I imagine a deal like this woule be very short term and not involve profit per se.
To put this all another way, if you were a hedge fund what would you need in place as infrastructure and then how would it work mechanically to handle a $20bio currency exchange?
1) Why would someone take this route as opposed to working with their bank? Some reasons I've thought of might be that funds may get better rates by being able to "shop" the trade or that funds offer privacy etc.
2) Hedge Funds typically require that funds be deposited with them and the withdrawn from them. This means that pass through the funds bank both in and out. Does anyone know how they manage this? Do funds keep multiple bank accounts in different currencies to handle deposits and withdrawals before the money goes on to the prime broker? Or do prime brokers have the ability to take the funds directly from the client thus bypassing the fund's bank and the need to apply exchange rates before you are ready to?
3) How exactly do amounts like this get handled? I realize the forex market is liquid but can this much really be cleared without much issue? What does it take and what kinds of brokers can handle it? That is a large amount of money (to me anyway). Brokers never talk about account maximums.
4) What kind of commission would be fair on something like this? Or rather what would this player expect fom the transaction both in terms of slippage and commission? Typically hedge funds make money from the 2&20 but I imagine a deal like this woule be very short term and not involve profit per se.
To put this all another way, if you were a hedge fund what would you need in place as infrastructure and then how would it work mechanically to handle a $20bio currency exchange?