FX Options Traders in the FX G10 currency space and FX Structuring space; Barclays Capital’s Singapore

Abstract

I spent 8 weeks interning Barclays Capital’s Singapore office. I was on the trading floor where the action was centred. My internship was divided into 2 rotations. Both my rotations were in the Foreign Exchange space. My first rotation was as a trader and I worked with the FX Options Traders in the FX G10 currency space. My second rotation was in the FX Structuring space. I have described below each rotation based on their objectives, process followed (for implementing it) and conclusions. Rotation 1:- Objectives: Understand the organization: Since this was my first experience with an investment bank, I thought this was one of the very important things to do in the bank. Understand the roles of each of the divisions in the FX space: The FX Space was divided into 3 – Spot, Forwards and Options desk. This was the same with G10 and EM FX. I shadowed a lot of traders in each of these domains to get a feel of their job. Black Scholes Pricer: After pricing a lot of options on the proprietary pricer of Barclays called BARX, I was asked to derive the formulae for each of the greeks (first and second order) used by them for risk management to create a spread sheet to try and mirror BARX calculations. Also, I extended the spreadsheet to calculate the prices at different volatilities as set by the traders. Spot trading: I had to make use of all available information – including Barclays Research expectations, upcoming announcements and Macro - economic indicators to take positions in the markets. This got me the opportunity to talk to Research, Technical Strategists to understand the graphs and data that they use. I made a profit of 27,000 Pounds in spot trading Process followed Since I was not allowed to do any real time options trading, this was typically a project which involved getting time off the traders to understand the concepts. Options traders are divided into Short dates (Vanilla), Long dates (Vanilla) and Exotics (both short dates and long dates). Short date traders trade in options whose expiry is less than 2 years to manage the risk on their books. Long date traders work with options of expiry greater than 2 years and typically less than 10 years. Exotics trade in all forms of structured products and vanillas to manage their risk. The risk book is a global book and not specific to the region. Hence, there is always a transfer of books at the close of trading in Singapore and when London opens. For the Black Scholes pricer, I had to work from first principles to derive all equations and then create the sheet. I then had to use BARX to price options and discuss reasons behind the high volatility based on news expected. For spot trading, I was given 10 million USD worth notionaland was asked to take positions daily on currency pairs. Having shadowed spot traders, I had to decide on stop losses and take profit areas. This involved understanding the technical strategy graphs (ichimoku clouds etc) and macro-economic conditions of the countries in the currency pair and countries that influence the economy of the currency pair. Conclusions: (Since we were not allowed to send emails to anyone outside Barclays, I have only a few print-outs that can be scanned to show the final result. (CD:Spot trading and Black Scholes Pricer.pdf)) 1. The Black Scholes spreadsheet created had values for different greeks in pips or % of foreign or domestic currency. 2. The Profit and loss book for spot trading had to be maintained and was shared with the director at the end of the internship. Total profit made in Pound Sterling was 27,088.364. Rotation 2: Objectives:- Automate the Basket Pricer : Baskets are a combination of options that allows a client to take position on a particular idea and not on particular currency pairs. For example - if the client believes that emerging markets are going to do well and has no view on which currency in particular, he could buy an EM currency basket. The clients of Barclays receive an indicative price every morning for such baskets. This process was done manually. Hence, I worked on automating this pricer till the generation of the email that can be sent to the clients. Automate the TARF Pricer: TARF is Target Accrual Range Forward. These are of 2 types – accruals and discrete. Accruals where in after a certain amount of money made on a set of forwards – the TARF will expire (or tarn out) and discrete where in after a certain number of times the TARF is in the money, it will TARN out. I worked on automating the daily indicative price sheet that are to be sent to clients for TARFs of accruals, discrete and pivot for 6 different currency pairs (EURUSD, USDJPY,AUDUSD, USDSGD, GBPUSD etc). Client presentation with structured ideas: Besides pricing, structuring also includes creating products that cater to requirements and views of the clients. I worked on a client presentation to put together structure ideas, trade rationale and the payoffs of the trade. This again involved analysing Barclays research data and graphs using data from Bloomberg. Process Followed Since both the automations involved extensive coding in VBA and writing of Macros, it gave me a chance to understand these products better. Both the Basket and TARF indicative prices had to be sent out at the beginning of the day along with other already automated pricers. The output format was finalized first since clients in different regions would be interested in different prices. After this the implementation was done to populate the fields in the excel sheet. This sheet could then be sent to the clients. For the client presentation, there were multiple ideas to be put in. I had to work on the trade rationale and the gains by entering that trade to be put in the Presentation. This required discussions with the country specific Barclays research team to cull out facts and figures that would support the trade idea. Also, some products involved interaction with other asset classes like the credit space. This needed collaborating with the other team as well. Conclusions: (Again, since emails to email ids outside of Barclays were barred, I will be scanning some printed sheets to show the conclusions. (CD : Template for indicative TARF&Basket prices.pdf, Trade Ideas Presentation.pdf)). 1. There was a demo session with the IT team that would run the automated pricers. The code and comments on the code were transferred to the team. 2. The presentation I had worked on was sent across to internal stake holders and clients as part of the investor monthly.