Why are we trading FX? Is it just because of the low transaction cost? Is it because the FX manager area used to be unregulated?Nope. Here's why we trade it. Here's why no investment manager can not afford not to invest in FX as a source of uncorrelated alpha.FX is the largest market in the world. It trades more than 4.000 billion USD per day. It's liquid, the amount of market participants is high, there is a natural trading demand (from corporates, individuals, businesses that need to buy other currencies), it's easy to price/value.FX has been a cash cow in investment banking for decades. Investment banks have had always FX prop and FX flow trading and it is a core element of investment banking. In Asset Management FX it's only something to hedge, to control exposure, to be aware of the risk – rarely traditional asset managers see FX as a core source for yield. Strangely only few managers have discovered FX investment products as a source for uncorrelated yields....yet. Today fixed income rarely lives up to the asset-liability-management (ALM) requirements (approx. 4% p.a.), equities are too volatile and the returns are too unstable, alternatives are often illiquid and hard to pri…
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