Hedge Fund Reader : Currency Markets are hot favourites of Hedge Funds

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August 12, 2005

Currency Markets are hot favourites of Hedge Funds

Currency markets world wide are the most liquid and as such are the favourite of hedge funds these days. The amount of foreign currency in dollars, Euro, yen etc floating around in the market has crossed the $2 trillion mark and is double of that amount which existed 12 years back. Last three or four years have seen a dramatic increase in the quantum of currencies that change hands daily. The number of people who are looking at currencies as an asset class has also grown exponentially. Bank of International settlements noted that much of the attitude shift and the volumes floating around has been brought about by hedge funds. This is primarily so since the funds are generally unregulated and there is no central clearing house to keep a tab on its activities. The number of hedge funds has increased dramatically and so has its ability to add to the strength of moves that occur because of the nature of these hedge funds. These funds actually have the power to temporarily protect or defend a currency and actually repel the market from being able to move in that direction. Theglobeandmail.com reports:

“Ian Gunner, who heads foreign exchange research for Mellon Bank NA in London, the global hub for currency trading, said there's a broad shift toward short-term plays in currencies, ranging between a few hours to a few months.”

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August 12, 2005 in Emerging Markets | Permalink