Introduction

Demetri Papacostas and Francesco Tonin

This book examines the behaviour of the major players in the FX market at a time of great change brought about by unprecedented transparency and efficiency. The huge advancement and broad availability of massive computer processing capability, combined with the globally coordinated imposition of regulation, is allowing a look under the hood for the first time. This transformation is throwing relationships that have existed for the last 40 years into turmoil, and causing massive dislocation of people. The FX market is looking more and more like the equity market, and the rocky path to the promised land of frictionless, fully transparent FX markets is becoming closer than ever.

We examine the impact of this revolution based on real-world situations, and through a detailed explanation of how these instruments work and how their characteristics impact the behaviour of market participants. Specifically, the book explores the basic use of FX, and particularly FX options, by the major market participants in a practical and intuitive way – how and why they mitigate risk, how they profit and how they speculate using FX-related instruments. The approach is practical and at times