Forex interview questions

If the interviewer asks the question they simply want to know your background. Again, do not lie. Depending on the role you are doing, you may not need much of a specialized background as training will be provided. Concentrate on what you do know about finance. Sample Answer Although I have never worked in financial services before, I consider myself financially literate.

I have been managing my own money since I was very young. Every time my family goes on holiday I am shopping around for the best exchange rates and currency deals rather than just changing money at the airport which is not cost-effective. If the interviewer asks the question it is important to be truthful. Sample Answer My belief is that the financial markets affect every one of us in some way so it is important you stay abreast of developments in the financial news.

I personally read the Financial Times and Forbes online when I have the chance and am especially interested in fin-tech news. For example, I see that Currencies Direct has recently rebranded itself as Lumon Pay — my hunch is that they are preparing themselves to diversify the services they offer. If the interviewer asks the question they are looking to see if you have a basic grasp of money markets. It is important that you demonstrate at least some understanding depending on the exact role you are applying for.

Sample Answer Currency Exchange rates are very complex and I am not sure anybody can claim to fully understand them! However, I know that they move depending on how much of a given currency is bought and sold at any time. If the interviewer asks the question they want to know how well you understand their particular business.

Different currency brokers cater to different customer bases so the answer will vary depending on which company you are interested in. Sample Answer At some point, pretty much everybody needs to either change currency such as for going on holiday or to send money abroad such as for business. Firms like Wise tend to cater to ex-pats and migrant workers sending the smallest sums of money to relatives at home. Whereas companies like TorFx help SMEs and corporate businesses who need large amounts of currency for foreign payrolls.

If the interviewer asks the question they are not looking for exact figures as you are not able to provide these. Rather they want to see if you understand the balance between providing value to the customer and making a profit for the broker. Sample Answer Of course, this can be a delicate balance to strike. If a broker offers too low a cost then they can actually lose money — this is on account of expenses and hedges to place for holding those amounts of money and constantly exchanging it.

For this reason, some firms have a minimum exchange amount, and ones with no minimum, tend to charge higher fees to make it worth their while. How Do Currency Brokers Work? If the interviewer asks the question they are really going back to basics to check your understanding but are also testing how well you would articulate this to a potential customer. Sample Answer A currency broker buys and sells currencies directly for customers and transfers the money internationally.

They can help individuals or businesses get the best possible deal on changing currencies and making international bank transfers. If the interviewer asks the question they are testing your detailed knowledge of the industry. This is a niche question and only somebody with experience will know the answer. As currency brokers often operate by bypassing the banks altogether, then there is no need for the money to move via SWIFT.

If the interviewer asks you this question, they expect you to tell them why you want to work for them. Sample Answer I believe that the fintech sector has a very bright future — joining it will provide the opportunity to work at the cutting edge of both technology and finance and may provide an opportunity for career advancement.

X has shown itself to be an ambitious firm and I believe my personal values are aligned with theirs. If the interviewer asks you this question, they want to know how you handle motivation. It is a good idea to tell them about a tough time when you managed to stay motivated. Sample Answer I am a self-starter and am always pushing myself. I stay motivated by setting goals and measuring out steps to achieve them.

For example, I set myself the challenge of training for a marathon within 6 months — it was very tough but I stayed motivated by finding a partner and we helped one another stay focused and by setting gradual goals rather than expecting too much at once.

If the interviewer asks you this question, they want to know why you think you are the best candidate for this role. Talk about your general interest in the role, your unique experience, and the skills that differentiate you from any other candidate. Sample Answer I am fascinated by fin-tech and feel driven to work in this sector.

As I mentioned, I have always been interested in exchange rates and whenever I go on holiday I always ensure me and my companions get the best deals — over the years I have saved hundreds if not thousands of dollars.

If the interviewer asks you this question they are testing your knowledge of the industry as well as your risk assessment and ability to foresee problems. Talk about both day-to-day challenges in the role as well as things that may affect the industry. Sample Answer I think the immediate challenge will be in beating the competition — the currency broker and money transfer sector is competitive after all.

I also expect that at some point global events will greatly impact the forex markets and there will be winners and losers from this. The foreign exchange FX market encompasses the conversion of purchasing power from one currency into another, bank deposits of foreign currency, the extension of credit denominated in a foreign currency, foreign trade financing, and trading in foreign currency options and futures contracts.

The market for foreign exchange can be seen as a two-tier market. Where, one tier is the wholesale or interbank market and the other tier is the retail or client market. All the International banks provide the core of the FX market. They stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, corporations or individuals, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange.

Retail transactions account for only about 14 percent of FX trades. The other 86 percent is interbank trades between international banks, or non-bank dealers large enough to transact in the interbank market. There are 5 groups in which the forex market participants can be categorized - 1. International banks - International banks provide the core of the FX market.

Nearly to banks worldwide make a market in foreign exchange, such that they stand willing to buy or sell foreign currency for their own account. Bank customers - The international banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Non-bank dealers - Non-bank dealers are large non-bank financial institutions, such as investment banks, mutual funds, pension funds, and hedge funds, whose size and frequency of trades make it cost- effective to establish their own dealing rooms to trade directly in the interbank market for their foreign exchange needs.

FX brokers - FX brokers match dealer orders to buy and sell currencies for a fee, but do not take a position themselves. Interbank traders use a broker primarily to disseminate as quickly as possible a currency quote to many other dealers. Most interbank trades are speculative or arbitrage transactions where market participants attempt to correctly judge the future direction of price movements in one currency versus another or attempt to profit from temporary price discrepancies in currencies between competing dealers.

The interbank market is a network of correspondent banking relationships, having large commercial banks maintaining demand deposit accounts with one another, referred as correspondent bank accounts. Such that the correspondent bank account network allows for the efficient functioning of the foreign exchange market.

Example - Let us consider a U. The U. If the U. The forward market involves contracting today for the future purchase or sale of foreign exchange. The forward price may be the same as the spot price, but generally it is higher at a premium or lower at a discount than the spot price. Dollar worldwide? Since interbank trading in currencies worldwide is against a common currency that has international appeal. Where the currency has been the U.

However, the euro and Japanese yen have started to be used much more as international currencies in recent years. What is more important is that trading would be exceedingly tedious and difficult to manage if each trader made a market against all other currencies. Swap transactions provides a means for the bank to mitigate the currency exposure in a forward trade.

Such that a swap transaction is the continuous sale or purchase of spot foreign exchange against a forward purchase or sale of an approximately equal amount of the foreign currency. In order to illustrate this, let us suppose a bank customer wants to buy dollars three months forward against British pound sterling.

Now the bank can handle this trade for its customer and simultaneously neutralize the exchange rate risk in the trade by selling borrowed British pound sterling spot against dollars. The bank will lend the dollars for three months until they are needed to deliver against the dollars it has sold forward. The British pounds received will be used to liquidate the sterling loan. Triangular arbitrage can be defined as the process of trading out of the U. The sole objective is to earn an arbitrage profit via trading from the second to the third currency when the direct exchange between the two is not in alignment with the cross exchange rate.

Most, but not all, currency transactions go through the dollar. Certain banks specialize in making a direct market between non-dollar currencies, pricing at a narrower bid-ask spread than the cross-rate spread. Such that the implied cross-rate bid-ask quotations impose a discipline on the non-dollar market makers.

If their direct quotes are not consistent with the cross exchange rates, a triangular arbitrage profit is possible. Some of the reasons due to which investors go to trade currencies instead of making use of other opportunities are - 1. Accessibility - Forex trading takes place on many different exchanges across the world, and as a result, investors can make currency trades 24 hours a day during weekdays.

Liquidity - Since there is so much activity, the global forex markets provide substantial liquidity to traders. While certain assets may be more difficult to buy and sell, traders interested in currencies will likely find substantial opportunities.

Liquidity risk can occur around major news events if liquidity providers seek to limit their exposure to market volatility. Leverage: Investors can potentially access far more leverage when trading currencies than they can when trading other assets. However, it is important to keep in mind that risk is inherent to investment. While using leverage to make larger trades can amplify returns, it can also amplify the size of losses.

Global Exposure: Forex trading provides investors with an opportunity to obtain exposure to economies across the world. By taking a more international approach, traders might diversify more successfully or potentially achieve higher returns by putting their money to work in areas that have greater potential.

Once again, risk is inherent to investment, so no returns are guaranteed and investors must conduct their due diligence on regions. Low Trading Expenses: Because there are so many buyers and sellers, spreads are low and trading costs are modest. Indeed forex trading involves risk. The currency markets do experience sharp fluctuations, just like the stock, bond or commodity markets. Liquidity risk can increase around major news events. Also there are some unscrupulous brokers out there. Due to which investors can benefit from performing substantial due diligence on any company they might work with.

For instance they could trade the euro without owning it by buying or selling options that involve the currency. Additionally purchasing spot contracts or forward contracts involving currency of choice would also provide exposure. When making trades, big banks employ professionals who may have significant education and experience. Due to which we can benefit greatly by doing your best to be prepared.

When evaluating currency pairs, some traders use fundamental analysis, which involves analysing economic fundamentals in different countries.

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Then I came to you a day latter and said actually, you can buy three apples with a dollar. In the case obviously! Note: Of course, when you come up with your final answer you should have your offer side be larger than your bid side! If it's not, check to make sure you didn't mistakingly use a bid or offer side number incorrectly somewhere in your calculations. How is a forward rate arrived at in FX? Often a client will want to do an outright forward in which a transaction is locked in at a certain price for a future date.

Typically forwards will involve settlements in the near-term under a few weeks , but can hypothetically go out years. These points can either be negative in value or positive thus the forward rate can be above or below the current spot rate observed in the market. Importantly, what informs forward points is not the expectation of the future trading level of the currency per se, but rather the interest rate differential. This gives us This can then be applied to the spot rate to get our ultimate forward rate.

What happens to a forward if the base currency's interest rates increase? This will decrease the value of the forward all else being held equal. So, if we look at the example above and increase the EUR 1 year rate of interest to 1. Similarly, if the interest rates of the base currency decrease, that will lead to an increase in the forward value.

Conclusion Not too long ago I received an e-mail from someone who was going through the sales and trading prep course I put together. They were quite interested in EM FX because they knew an impressively large number of European languages. However, they were worried about the future of the industry due to how much automation has occurred in FX over the past few decades. The reality is that FX sales or trading within any large investment bank is a great training ground.

In fact, over the past ten years it's been one of the best. This is because with the rise of crypto trading platforms, crypto-focused hedge funds, and general fin-tech companies focused on cross-currency payments there has never been a greater demand for those who have been properly trained in FX at a large investment bank. When you work at a large bank part of what you learn about is infrastructure.

You learn how the sausage is made; how liquidity pools together, what to look for when markets feel tight, and how to deal with large flows of capital. The sole objective is to earn an arbitrage profit via trading from the second to the third currency when the direct exchange between the two is not in alignment with the cross exchange rate.

Most, but not all, currency transactions go through the dollar. Certain banks specialize in making a direct market between non-dollar currencies, pricing at a narrower bid-ask spread than the cross-rate spread. Such that the implied cross-rate bid-ask quotations impose a discipline on the non-dollar market makers. If their direct quotes are not consistent with the cross exchange rates, a triangular arbitrage profit is possible. Some of the reasons due to which investors go to trade currencies instead of making use of other opportunities are - 1.

Accessibility - Forex trading takes place on many different exchanges across the world, and as a result, investors can make currency trades 24 hours a day during weekdays. Liquidity - Since there is so much activity, the global forex markets provide substantial liquidity to traders. While certain assets may be more difficult to buy and sell, traders interested in currencies will likely find substantial opportunities. Liquidity risk can occur around major news events if liquidity providers seek to limit their exposure to market volatility.

Leverage: Investors can potentially access far more leverage when trading currencies than they can when trading other assets. However, it is important to keep in mind that risk is inherent to investment. While using leverage to make larger trades can amplify returns, it can also amplify the size of losses. Global Exposure: Forex trading provides investors with an opportunity to obtain exposure to economies across the world.

By taking a more international approach, traders might diversify more successfully or potentially achieve higher returns by putting their money to work in areas that have greater potential. Once again, risk is inherent to investment, so no returns are guaranteed and investors must conduct their due diligence on regions. Low Trading Expenses: Because there are so many buyers and sellers, spreads are low and trading costs are modest.

Indeed forex trading involves risk. The currency markets do experience sharp fluctuations, just like the stock, bond or commodity markets. Liquidity risk can increase around major news events. Also there are some unscrupulous brokers out there. Due to which investors can benefit from performing substantial due diligence on any company they might work with.

For instance they could trade the euro without owning it by buying or selling options that involve the currency. Additionally purchasing spot contracts or forward contracts involving currency of choice would also provide exposure. When making trades, big banks employ professionals who may have significant education and experience. Due to which we can benefit greatly by doing your best to be prepared.

When evaluating currency pairs, some traders use fundamental analysis, which involves analysing economic fundamentals in different countries. When using this technique, investors might look at GDP, inflation and unemployment in the two nations involved in an exchange rate. Another resource traders can use is technical analysis, which require reading charts to get a better sense of the market sentiment surrounding a specific currency pair.

On the other hand some traders may use both fundamental and technical analysis before making any transactions. By doing so, they might be able to increase their chances of competing successfully with big banks. Trading forex on margin carries a risk of losses in excess of the deposited funds and may not be suitable for all investors.

Forex Trading is not centralized on an exchange, as with the stock and futures markets. The Forex market is considered an Over the Counter OTC or 'Interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.

It is truly a hour market, such that Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and New York. Such that investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night. No forex trading is not expensive. Since most online Forex brokers allow customers to execute margin trades at up to leverage.

But it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great. Also a more pragmatic margin trade for someone new to the Forex markets would be but ultimately depends on the investor's appetite for risk. We can consider margin essentially as a collateral for a position. Margin allows traders to take on leveraged positions with a fraction of the equity necessary to fund the trade.

In trading a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. In the given scenario, the investor benefits from a rising market. Where on the other hand a short position is one in which the trader sells a currency in anticipation that it will depreciate.

In this situation the investor benefits from a declining market. However, it is important to remember that every Forex position requires an investor to go long in one currency and short the other. Intraday positions are all positions which are opened and closed anytime during normal trading. Overnight positions are positions that are still on at the end of normal trading hours, which are usually rolled over by your Forex broker based on the currencies interest rate differentials to the next day's price.

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price.

This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

One of the most common risk management tools in Forex trading are the limit order and the stop loss order. A limit order places restriction on the maximum price to be paid or the minimum price to be received. Where a stop loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against an investor's position. The liquidity of the Forex market ensures that limit order and stop loss orders can be easily executed.

All currency traders make decisions using both technical factors and economic fundamentals. All the technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, whereas fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumour. The most dramatic price movements however, occur when unexpected events happen.

The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war.