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Foreign Exchange

Forward traders: Roll me over and stuff me again – part 2

Part 1

It seems there are a fair few forward traders who are on for a record year, which seems a little bit odd given the dislocation that has occurred in their market. Apparently a fair number of ordinary Joes have evolved into superstars. Now, as a natural cynic I have to wonder why and the most likely answer is that the old ‘Tom Next’ rip-off is back in fashion. And it’s not just clients who are suffering. There is plenty of griping to be heard from anyone who has positions to roll and, as was the case in the past, some forward traders are clearly not averse to striping up their colleagues. In other words, there’s been quite a lot of robbing Peter to pay Paul.

I would have thought that futures offered a neat solution. Of course, they may lack the flexibility of cash, but at least with a future you face only getting ripped off on the roll every quarter rather than every day And speaking of futures, I did ask the CME how it had coped with the fact that there have been a lot of times when nobody actually knew where the forward market was. This seems not to have impacted it to any great degree, although as the contracts neared expiry there were a few fun and games reported. Rather, it has actually increased arbitrage opportunities because of sudden changes in the basis.

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