Pj,
How hedge funds operate in the FX market depends strongly on their employed strategies. There are pure FX oriented funds but they are not the majority.
Reasons for a hedge fund to have a position (or interest) in the cash FX market (or in the FX futures market) can be manifold.
For example, when I used to work in the derivatives industry from 1993 until 2000, interest rate products such as IR-swaps and IR-options depending on the currency the contracts were traded in, had 'cash-settlement' as an expiry option - that meant that the counterparts had to settle the contract via the cash FX market. The way it worked was on the day, they would simply check the underlying fx pair's current price and placed the equivalent of sometimes huge ($500M or more) FX orders - just like that.
Other reasons for funds to be in the FX market are of course their own currency trading strategies, or currency risk resulting from other correlated exposure which they need to take care of on a daily basis.
There are as many different participants as there are reasons to enter into a FX transaction - its impossible to keep track of them at any time, except when time stands almost still: when interest rate decisions are to be released or when situations arise such as the unwinding of the carry trade a while back. Those exposures in the FX market are reported at the Bank for international settlements in Switzerland (BIS). Or the TIC data gives clues about where capital is flowing from and to. That again is not specific as to individual groups but whole industries and counties.
Unlike after Bretton Woods where currency bands were fixed and tight, they now move in much larger ranges - still ranges though. If they deviate too much, CB's step in but that is something FTI in his thread about 'technical analysis fallacy' explains much better than I could.
http://www.forexfactory.com/showthread.php?t=57639
That is all I can do for you now - time is money and money is time.
regards
daytrading
How hedge funds operate in the FX market depends strongly on their employed strategies. There are pure FX oriented funds but they are not the majority.
Reasons for a hedge fund to have a position (or interest) in the cash FX market (or in the FX futures market) can be manifold.
For example, when I used to work in the derivatives industry from 1993 until 2000, interest rate products such as IR-swaps and IR-options depending on the currency the contracts were traded in, had 'cash-settlement' as an expiry option - that meant that the counterparts had to settle the contract via the cash FX market. The way it worked was on the day, they would simply check the underlying fx pair's current price and placed the equivalent of sometimes huge ($500M or more) FX orders - just like that.
Other reasons for funds to be in the FX market are of course their own currency trading strategies, or currency risk resulting from other correlated exposure which they need to take care of on a daily basis.
There are as many different participants as there are reasons to enter into a FX transaction - its impossible to keep track of them at any time, except when time stands almost still: when interest rate decisions are to be released or when situations arise such as the unwinding of the carry trade a while back. Those exposures in the FX market are reported at the Bank for international settlements in Switzerland (BIS). Or the TIC data gives clues about where capital is flowing from and to. That again is not specific as to individual groups but whole industries and counties.
Unlike after Bretton Woods where currency bands were fixed and tight, they now move in much larger ranges - still ranges though. If they deviate too much, CB's step in but that is something FTI in his thread about 'technical analysis fallacy' explains much better than I could.
http://www.forexfactory.com/showthread.php?t=57639
That is all I can do for you now - time is money and money is time.
regards
daytrading
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