Foreign exchange marketplace structure, players and evolution

 Foreign exchange market structure, players and advancement Essay

2011 | 10

Functioning Paper

Analysis Department

Forex market framework, players

and evolution

Jordan R. King, Carol Osler and Dagfinn Rime

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ISSN 1502-8143 (online)

ISBN 978-82-7553-616-5 (online)

Foreign Exchange Industry Structure, Players and Evolutionв€— Michael 3rd there’s r. KingвЂ

Carol Osler‡

Dagfinn Rime§

August 14, 2011

Abstract

Electric trading has transformed forex markets over the past decade, plus the pace of innovation just accelerates. This formerly maussade market is today fairly transparent and transaction costs are only a small fraction of their former level. Entirely new brokers have joined the rub, including retail and high-frequency traders, while foreign exchange trading volumes have tripled. Market focus among sellers has grown reflecting the heavy purchases of technology. Undeterred, some new non-bank market members have commenced to make markets, challenging the regular foreign exchange sellers on their own turf. This paper outlines the players in this market and the composition of their relationships. It also gives new data on how that structure has changed over the past twenty years. Throughout, this highlights problems relevant to exchange rate modelling. JEL Classification: F31, G12, G15, C42, C82.

Keywords: exchange rates, algorithmic trading, market microstructure, electronic trading, high frequency trading.

в€— The authors would like to thank the editors, an anonymous referee, Geir BjГёnnes, Alain Chaboud, Alex Heath, Colin Lambert, Michael Melvin, Michael Moore, Richard Olsen, and James Whitelaw to get helpful comments and suggestions on the п¬Ѓnal text. All of us also say thanks to many confidential market members for their talks and observations. Any staying errors happen to be our own. The views portrayed in this daily news are the ones from the experts and do not necessarily represent those of the Norges Bank. †Richard Ivey School of Business, University of American Ontario. [email protected] uwo. california. ‡ Brandeis International Organization School, Brandeis University. [email protected] edu. В§ Norges Financial institution and Norwegian University of Science and Technology. Related author: Norges Bank, Oslo, Norway, dagfinn. [email protected] number

1

Introduction

It would be hard to overstate the importance of foreign exchange market segments for the earth economy. That they affect output and career through genuine exchange costs. They have an effect on inflation throughout the cost of imports and item prices. They will affect foreign capital flows through the dangers and returns of different assets. Exchange prices are justifiably a major focus for policymakers, the public, and of course the media.

To understand exchange rates you have to know how these prices are decided. This paper describes the foreign exchange market and reveals new proof on recent trends, therefore setting the stage throughout the guide. It п¬Ѓrst presents stylized facts within the market's size and composition. It then describes more carefully the motives, incentives, and constraints from the major players....

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