Friday, May 9, 2014

FX vs IR trading desks, briefly

Now I know that in a large sell-side, FX trading is "owned" by 2 desks - the "cash" FX desk and the IR desk. Typically, anything beyond 3 months is owned by the Interest Rate desk (eg STIRT). It seems that these FX instruments have more in common with interest rate products and less in common with FX spot. They are sensitive to interest rates of the 2 currencies.

In one extreme case every fx forward (outright?) deal is executed as a FX spot trade + a FX swap contract. The FX swap is managed by the interest rate desk.

FX vol is a 3rd category, a totally different category.

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