Monday, March 30, 2009

top 3 subsystems - spot (and forward) FX dearler bank

There are 3 types of FX dealers - spot dealer, forwards dealer and (corporate)client-facing sales dealers covering spot and forward. They use the systems below differently.

Note ONLY the sales dealers would interface with clients (no retail client). Spot/Forwards dealers deal with sales dealers and counterparty dealers.

#1))) Heart of entire FX desk is the "position keeping system" or position-master. All "deals" are stored there, so as to "calculate current positions" and PnL. Same idea as MTS inventory-mgr and Reo main-grid.

Note sales dealers never keep positions. I believe they are internal brokers on bank's payroll.

FX position systems usually show real time unrealized P/L.
#2))) AFTER (never before) a dealer executes trades via a voice broker, he needs to record trade details on a "deal-ticket" (see other post) and enter it in the "deal entry system", just like MTS. Electronically executed trades don't need this "deal entry system"

Spot trades are too many so seldom voice-based. Forwards dealers use voice brokers more often. Sales dealers do even more voice EXECUTION (often with a customer). These 2 groups definitely need the deal-entry system.

As of 2010, the most common execution model between clients and banks is not ECN (growing) or Reuters conversational dealing, but voice execution.

#3))) (Pending) order management -- If a spot dealer wants to hold a position "open" overnight, she must leave a stop loss order. While she's out, the order is looked after by the take-over time zone (NY -> SG/TK/HK -> London) which MIGHT execute the stop loss order.

Forwards dealers don't leave overnight orders. Sales dealers often create customer orders for the spot/forwards dealers to execute.

Sales dealers can also create overnight limit orders on behalf of clients.

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