The growth of the global exchange traded fund business is increasing the complexity of FX hedging for asset managers, in terms of their overall international business and for specific FX-hedged products. Balancing FX overlay programmes with FX swaps, forward and spot trades to hedge risk against the trading of ETF underlying instrument creates challenges, particularly in fixed income. The benchmark for the trading desks on passive funds is so known that traders at large ETF managers may trade days or weeks in advance of their portfolio manager’s benchmark to limit market impact.
By trading FX peer-to-peer, and getting access to natural liquidity flows, they can reduce market risks and costs argues Jay Moore, founder and CEO of FX Hedgepool. He outlines the advantages of trading FX spot and currency derivatives P2P and how efficiency gains support cost reduction and alpha generation for the portfolio.