How Currency Markets Work

An insider’s original take on how global currency markets operate in the real world In How Currency Markets Work, a veteran currency trader and a geopolitical risk analyst deliver a comprehensive and street-smart guide for understanding currency markets. The authors combine insights from the worlds of trading, economics, and geopolitics to create an eye-opening and original new take on how currency prices are determined. This book bridges the gap between how currency markets are taught and how they actually trade, using character-driven narratives built on real-world market events and data to explain currency trading successes and failures in intuitive and practical ways. Inside the book: Actionable tools and tested strategies for currency trading you can apply immediately to improve your returns and your portfolio’s risk profile Clear real-world examples of how geopolitical events, wars, and political shifts impact currency values Profiles of the speculators, corporate hedgers, and central banks whose interplay shapes exchange rates Advanced strategies for options, volatility trading, and exploiting mathematical relationships in currency markets A deeply insightful and accessible exploration of a much-discussed topic, How Currency Markets Work is a powerful new resource for academics, researchers, hedge fund managers, bank traders, policymakers, and practicing and aspiring forex traders.

Preface xiii Acknowledgments xv Chapter 1 The Global Currency Market 1 Chapter 2 Speculators: The Bank of China, Proprietary Desks, Hedge Funds, and Retail Traders 17 Chapter 3 Corporate Hedgers: The Hidden Giants of Currency Markets 39 Chapter 4 Market Structure: The Architecture of Major and Emerging Currencies 59 Chapter 5 Trading Political and Geopolitical Risk 81 Chapter 6 The Psychology of Currency Trading 101 Chapter 7 How Traders React to Market Events 123 Chapter 8 Liquidity, Volatility, Basis, and Tail: A Trader’s Guide 141 Chapter 9 Stocks, Bonds, and the Currency Markets 159 Chapter 10 Mathematical Patterns in Triangles, Convexity, and Forward Gaps 177 Chapter 11 Advanced Trading: Probability, Volatility, and Speed 195 Appendix 217 Glossary 221 About the Authors 231 Index 233