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High-frequency trading in the foreign exchange market

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  • Bank for International Settlements

Abstract

High-frequency trading (HFT) has increased its presence in the foreign exchange (FX) market in recent years. A discussion is emerging about its benefits and risks, though the assessment is often hampered by difficulties in identifying and quantifying HFT as distinct from other forms of automated trading. It is crucial to have a clearer understanding of what HFT is (and is not) and what it does (and does not do) before assessing its implications from a policymaker's point of view. This report examines the facts about HFT in FX, including its definition, effect on other market participants, behaviour in normal and stressed times, and key differences with HFT in equities. It also identifies issues pertaining to market functioning, systemic risks, and market integrity and competition that may warrant further investigation. This report was prepared by a study group chaired by Guy Debelle, Assistant Governor of the Reserve Bank of Australia.

Suggested Citation

  • Bank for International Settlements, 2011. "High-frequency trading in the foreign exchange market," Markets Committee Papers 05, Bank for International Settlements.
    • Handle: RePEc:bis:bismcp:05
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    References listed on IDEAS

    as
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    2. Carol L. Clark, 2010. "Controlling risk in a lightning-speed trading environment," Policy Discussion Paper Series PDP-2010-01, Federal Reserve Bank of Chicago.
    3. Carol L. Clark, 2010. "Controlling risk in a lightning-speed trading environment," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
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