Tick Size Reduction and Price Clustering in a FX Order Book
AbstractWe investigate the statistical properties of the EBS order book for the EUR/USD and USD/JPY currency pairs and the impact of a ten-fold tick size reduction on its dynamics. A large fraction of limit orders are still placed right at or halfway between the old allowed prices. This generates price barriers where the best quotes lie for much of the time, which causes the emergence of distinct peaks in the average shape of the book at round distances. Furthermore, we argue that this clustering is mainly due to manual traders who remained set to the old price resolution. Automatic traders easily take price priority by submitting limit orders one tick ahead of clusters, as shown by the prominence of buy (sell) limit orders posted with rightmost digit one (nine).
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1307.5440.
Date of creation: Jul 2013
Date of revision: May 2014
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-IFN-2013-07-28 (International Finance)
- NEP-MST-2013-07-28 (Market Microstructure)
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