In the context of futures and options, what does active currency management involve?

Active currency management is characterized by making frequent trades aimed at responding to market fluctuations and adjusting the portfolio in order to take advantage of price movements. This approach allows a manager to capitalize on short-term currency movements, hedge against volatility, and ultimately enhance returns or reduce risks in the currency exposure of their portfolio.

The essence of active management lies in its responsive nature, which involves regular evaluations of market conditions and the subsequent adjustments in trading strategies based on those evaluations. This contrasts with the idea of passive management, which would involve making little to no adjustments and simply maintaining positions without frequent trading.

By engaging in frequent trades, a currency manager can effectively navigate the complexities of the foreign exchange market, potentially outperforming a passive strategy that relies on holding positions until they expire or only adjusting them at predetermined intervals. This proactive stance is a hallmark of active management strategies in the currency markets.