John Taylor became involved in the cash foreign exchange market near its beginning almost by default. He tapped into the technical trading revolution of the time and found that managing money in an absolute return strategy was much more appealing than hedging someone else’s risk. Taylor founded Chemical Bank’s Foreign Exchange Advisory Service in 1972 and developed the first computer models to assist multinationals in managing foreign exchange risk. Now his firm, FX Concepts, manages more than $8 billion in various programs, most of it concentrated in forex. He is a pioneer in the analysis of cyclicality of foreign exchange and was one of the first traders to apply technical trend-following models to forex markets. He did not stop there, however, expanding his programs by applying his analysis to carry and volatility strategies. We sat down with Taylor to discuss the history of the forex market and current market dynamics.
Futures Magazine: John you have been involved in the cash forex market for more than 40 years. How has it changed in that time?
John Taylor: People recognize that it exists now. It used to be that I would go to cocktail parties and would say what I did and everyone would walk away. Now they talk my ear off. It has changed a lot. Obviously the size of the market [is bigger] and participants are making more so it is harder to make money, perhaps because there are so many participants and fewer of the participants [are stupid participants], the stupid participants are still there but there are a lot of professional participants that are trying to make money which makes it harder.
FM: Stupid participants?
JT: The central banks, the governments, the General Motors, the Boeings; those people [entering the markets] for a different purpose so you could make a lot of money off of their needs. Nowadays their needs are far smaller relative to the size of the market. Most of the people in the market are trying to make money.