Impact of Trading in the Multi-Dealer Spot Foreign Exchange

Journal of Trading, 2016, Vol. 11, No. 1: pp. 68-75

Posted: 3 Jan 2012 Last revised: 12 Jan 2016

See all articles by Anatoly B. Schmidt

Anatoly B. Schmidt

Finance and Risk Engineering, NYU Tandon School of Engineering

Date Written: January 3, 2012

Abstract

Impact of trading in the multi-dealer spot FX market is described using a structural vector autoregressive model. The model is derived in terms of return, signed trading volume, signed order book volume, and signed inside-market order flow. The EUR/USD and EUR/JPY data samples with whole-pip pricing and decimal pip-pricing are used. The results show that market impact is determined primarily with the signed trading volume and decays on the ten-second time scale. Signed inside-market order flow may be important for currency pairs with wide bid/offer spreads. Two subtle effects, the limit order book’s “push” and “pull” are described.

Keywords: FX, market impact, market microstructure, VAR

Suggested Citation

Schmidt, Anatoly B., Impact of Trading in the Multi-Dealer Spot Foreign Exchange (January 3, 2012). Journal of Trading, 2016, Vol. 11, No. 1: pp. 68-75 , Available at SSRN: https://ssrn.com/abstract=1978977 or http://dx.doi.org/10.2139/ssrn.1978977

Anatoly B. Schmidt (Contact Author)

Finance and Risk Engineering, NYU Tandon School of Engineering ( email )

NY
United States