Aug 24 2009
Most of the institutional investors speculate in the currency markets. They also often require foreign exchange to buy or sell foreign assets. Institutional investors and speculators like the hedge funds and the investment management companies tend to be very aggressive players in the spot forex market. Learn
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Most of these institutional speculators have international portfolios like stocks and bonds to diversify their holdings and to get a higher return. For example, an investment manager who is in charge of an international stock portfolio will need foreign currencies so as to pay for any purchase of foreign stocks.
Hedge funds are a different breed altogether. Hedge funds often practice a very different style of wealth generation from investment management companies. Mutual funds tend to be conservative in their investments. A major part of the mutual funds portfolio is diversified between stocks and bonds.
Hedge funds tend to adopt more aggressive forms of trading with the aim of generating a high return on investments. Hedge funds tend to be highly aggressive in their investment strategies.
Currency trading has now become a part of the investment portfolio of hedge fund managers. A portion of the investment portfolio of a hedge fund is specifically adopted for currency speculations with the objective of maximizing the overall portfolio returns.
You must have heard the name of George Soros Quantum Hedge Fund. George Soros made the profit by betting that the British Pound was too weak to stay in the European Exchange Rate Mechanism. He is famously known as the, “The man who broke the Bank of England.” In a matter of few days he was able to make a profit of $1 Billion with currency trading.
Last year hedge funds were highly active in the crude oil futures market. They drove the price of crude oil from around $60-70 to almost $150 within the span of a few months. Now hedge funds are actively engaged in the forex markets. Large hedge funds and the investment management companies are capable of moving the forex markets in their transactions.
Most of these hedge fund managers were involved in a number of different markets all over the world looking for making a quick killing. This shows how much powerful hedge funds became.
These hedge funds have the power to move the currency markets as well with their billions of dollars worth of daily buying and selling of foreign assets. All these foreign transactions require currency exchange.
However, the recent stock market crash has taken a heavy toll on a number of hedge funds. Some of them went bankrupt. Many may not survive and the hedge fund industry may undergo a major transformation in the near future as a result of the stock market crash of 2008.
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