Question for those with Bank/Instituational FX Dealing Experience

Hey All

Wondering if somebody who has worked as a dealer for a bank or large institutional would be able to help me out on a couple of points.

A bit of background; I am lucky enough to be working on a fx sales desk (mainly servicing small retail clients, trades are rarely much bigger then 0.5mio) for a large bank for the next month or so. Whilst I have a background in FX, its not from a dealing background (my experience is in operations in addition to my personal FX trading).

Anyhow I am hearing one phrase that I am having trouble following: left hand side trade and right hand side trades. I am picking that they refer to the bid/ask, so left hand side would be refering to the bid and the right hand side would be the offer. So does that mean that a left hand side trade would be the bank buying, and right hand side be the bank selling?

Any help would be greatly appreciated. Also if anybody can point me in a direction that has break down calculations of forward points, illustrates the relationship between the forward points and term of the trade and how been a buyer or seller effects the forward points.

Any help would be greatly appreciated.

In my understanding, the left hand side trade or right hand side trade are trading concepts, nothing to do with operations.

In a falling market, a direct buy (hoping the fall is a retrace to the bigger uptrend) will be a left hand side trade. While, an indirect buy after the price bounce off will be a right hand side trade.

Hope this will clarify your question a bit.

No offence but... Why not ask the dealers you are working with to clarify exactly what they mean? My first bit of advice - dont be too proud to ask the Dealers what may seem like "simple" questions. In my experience Dealers like "simple" questions - it makes them feel clever ...(you can see how clever they really are by asking them to show you some manuallly calculated, "cock date", cross rate, reciprocallly quoted fwd rate calculations later - at which point theyll probably have an excuse about "being far too busy")


Anyway... getting down of my soap box... Yes.. you're probably right If you are talking about the quotes your Bank is making and being "hit" on.

As a spot transaction is (usually) for 2 day settlement, if the value date is forward the rate is adjusted to allow for the difference in Interest Rates of the relevent ccys.. Because settlement is extended from spot for eg: 6mths (180 days), each counterparty has the funds they would have sold/paid to invest for a further 6 mths.

Approximate example... (Your Bank making the quote)
Usd / Chf
1.2225/28 (spot)
-0.0179/-0.0177 (6mth fwd swap points) - these points are deducted from the spot price because USD Int Rates are higher than CHF Int rates.

(Depending on the int.rates of the ccys traded, the fwd pts could be added to the price eg.GBP/NZD)

This means
- if the bid (1.2225) is given, the forward rate would be 1.2046
- if the offer (1.2228) is taken, the forward rate would be 1.2051



How to calculate the fwd rate.

Eg: Usd/Chf - 6 mth forward price (approximate)

Spot: 1.2225/28
USD 6 mth(180 days) Int Rate : 5.25%
CHF 6 mth(180 days) Int Rate: 2.25%


Forward Outright Rate = (1.2225+(1.2225*2.25*180/36000)) / (1+(1*5.25*180/36000)) = 1.2046.


or..
Bank A quotes a spot price of 1.2225/28
Bank B sells $1mio at 1.2225 but wants to do a 6mth forward outright

Bank B has the $1 mio he "sold" for a further 6mths before settlement, so he could invest his $1mio at 5.25% / 180 days / 360 = $26,250 interest = Total $1,026,250

Bank A has the CHF 1,222,500.00 he "sold" for a further 6mths before settlment, so he could invest his Chf 1,222,500 at 2.25% / 180 days / 360 =Chf 13,753.13 interest = Total Chf 1,236,253.13

The fwd rate could be calculated by dividing 1,236,253.13 / 1,026,250 = 1.2046 ie = -0.0179 pips from spot price.

For a forward outright the counterparty hits the same side of the price as if he was dealing spot

Thanks for clearing that up. Funny you say that actually, because the first thing I did this morning was ask them what the meant, and you are right about the "being too busy"!

Appreciate the help! Having a great time sitting on a real dealing desk - don't want this time to end! Hopefully I will get the chance to sit on one of the trading desks.

Although I did have my first stuff up today, but that is a different story altogether!