Trading the foreign exchange markets has become the new playground for avid traders, especially Aussie traders profiting from the carry trade into the Aussie dollar.

Over the past few years, the Aussie dollar has appreciated mightily against many major currencies – up 34% against the Euro, 52% against the British Pound and 18% against the US dollar. Traders on the right side have profited handsomely. And now, a growing interest in Asian currencies – such as the Chinese renminbi – is attracting a new batch of traders keen for exposure to the growing strength of Asia.

Although foreign exchange volumes dipped earlier this year, Gary Tilkin, president and chief executive of global currency and derivatives firm GFT Markets notes that confidence has returned over the past two months. “September (2012) was one of our better months of the past year,” Tilkin said during a recent visit to Australia. “I think much of this market malaise is coming to an end. It seems to me, we’re getting a little more volatility, more action and more opportunities. Competition seems to be heating up – people are spending more on advertising again, which is a good sign. It seems a little easier to do business than it did four months ago.”

Extreme volatility caused by the global credit crisis and European sovereign debt problems was a boon for forex providers. Volumes exploded, and traders were able to identify myriad opportunities to make money. For example, between July and November 2008, the AUD/USD moved from USD 0.97 to USD 0.62 – only to hit $1.10 in July 2011.

Since then the inevitable slowdown in volatility has seen trading ranges flatten, volumes decline, spreads tighten and many forex providers have suffered cuts in profit margins. This, in turn, has led firms across the world to cut staff, merge with other companies or go out of business.

For Tilkin, lower trading volumes brought closer company scrutiny. “It made us become more efficient by trimming the fat,” he says.

But as competition between forex providers heats up, traders are benefiting from more competitive pricing (a price war has seen spreads tighten considerably) and sophisticated ways to trade. Trades with GFT, for example, can be executed via iPhone, iPad, Android, Kindle Fire or any other internet-enabled phone. “We recognise the importance of clients being able to trade when it suits them,” Tilkin says.

Many providers now offer trading over the Chinese renminbi. GFT clients can trade the Chinese renminbi against the US dollar and the Japanese yen on a spot basis. Using the Hong Kong deliverable (CNH), clients have access to a currency that will become increasingly more important in line with a growing China. Tilkin says the Chinese currency may be strongly influenced by central bank policy, but moves are bi-directional and the renminbi is being allowed to appreciate gradually as Beijing responds to international pressure.

FX options are an alternative. “They have enjoyed a good uptake, particularly among experienced traders,” says Tilkin. “It’s about giving people different ways to trade.”

Tilkin says that the biggest change since launching back in 1997 is simply the fact that individual customers can even trade forex. Prior to 1997, Tilkin says forex markets were mostly the domain of banks and large financial institutions trading among themselves – and that was really the interbank market. “It was never really available to small customers in small lots,” Tilkin says.  “Minimum trades were about $1 million and they were frequently far more than that.”

But forex markets opened up to individual traders after a reduction in lot sizes to $100,000 and leverage of about 100-to- 1 in many cases. “You didn’t have to post much money in order to trade $100,000 in currency,” Tilkin says. “That was huge and it brought in large retail business. The banks continued to do what they did and corporations were able to hedge their risks. Retail customers simply added to the liquidity of the markets and were able to take advantage of the moves. That was the major change.”

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