Fixed income, currencies, and commodities is a division of investment banking that provides a number of important trading and derivatives services to investors and corporate clients. The purpose of the FICC group is to help clients, whoever they may be, ensure that their FICC-related risks are properly covered and that their portfolios align with their future view on foreign currencies, commodities, and bonds.
To the casual observer, it may seem odd to have these three asset classes together. After all, currencies and commodities are very different things and, from an ideological lens, polar opposites. Opponents of Central Bank-issued currencies tend to believe in the enduring value of commodities and vice versa. So why house them together?
The reason is simple: the underlying principles of assessing and analyzing risks and rewards of these three assets are largely similar. Unlike equities, where a number of external and non-financial factors can come into play (for instance, Chipotle (CMG) stock can suddenly tank because of an e. coli outbreak), FICC tend to be more directly tied to statistical trends that financiers can use to predict limits for upside and downside with less errors than with stocks.
But that doesn’t mean FICC are immune to external risks. The recent blowup of the Turkish lira, for instance, was an outlying event related to geopolitics that no financier could have predicted. It is also at times of these unusual events that FICC analysts and traders will sit back, avoid making any predictions, and simply watch to see how things unfold (while, of course, providing clients the opportunity to speculate if they so desire, providing it does not cause any risks for the bank).
What kind of person is attracted to FICC divisions? There are two types: the quants and the traders. Quants are the people who are attracted to the statistical and math side of finance, while the traders are the ones who like using technical analysis to making trading decisions. FICC groups may try to incorporate macroeconomic and geopolitical analysis into their decisions and strategies, but for the most part it is a technical and numbers-heavy corner of the banking world.
Is it lucrative? It can be. But FICC has not typically been a primary focus of buy-side analysts and hedge funds, who find the biggest money in an unusual approach to equity markets more often than they focus on bonds and commodities. While there are exceptions, particularly for corporate credit, oftentimes the hedge fund focus on FICC is very different from the bank’s—less mathematical, more qualitative, and much more in-depth. That doesn’t mean a banker in the FICC world cannot make a very good living, but it does mean that anyone with ambitions to get into the world of hedge funds may want to pivot away from FICC and towards equities and corporate debt.