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Profits and Position Control: A Week of FX Dealing

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  • Richard K. Lyons.

Abstract

This paper examines foreign exchange trading at the dealer level. The dealer we track averages $100,000 in profits per day on volume of $1 billion per day (or one basis point). The half-life of the dealer's position is only ten minutes, providing strong support for inventory models. A methodological innovation allows us to identify his speculative position over time. This speculative position determines the share of profits deriving from speculation versus intermediation: intermediation is much more important.

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File URL: http://haas.berkeley.edu/finance/WP/rpf273ptr.doc
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Bibliographic Info

Paper provided by University of California at Berkeley in its series Research Program in Finance Working Papers with number RPF-273.

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Date of creation: 01 Oct 1997
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Handle: RePEc:ucb:calbrf:rpf-273

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Postal: University of California at Berkeley, Berkeley, CA USA
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Cited by:
  1. Richard Portes & Helene Rey, 1998. "The Emergence of the Euro as an International Currency," NBER Working Papers 6424, National Bureau of Economic Research, Inc.
  2. Yin-Wong Cheung & Menzie D. Chinn, 1999. "Traders, Market Microstructure and Exchange Rate Dynamics," NBER Working Papers 7416, National Bureau of Economic Research, Inc.
  3. Adrian E. Tschoegl, . "The Key to Risk Management: Management," Center for Financial Institutions Working Papers 99-42, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Gehrig, Thomas & Menkhoff, Lukas, 2003. "The use of flow analysis in foreign exchange: exploratory evidence," Hannover Economic Papers (HEP) dp-276, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  5. Martin D.D. Evans & Richard K. Lyons, 1999. "Order Flow and Exchange Rate Dynamics," NBER Working Papers 7317, National Bureau of Economic Research, Inc.
  6. Kahn, Charles M. & Roberds, William, 2001. "The CLS bank: a solution to the risks of international payments settlement?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 191-226, June.

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