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Foreign exchange market structure, players and evolution

Author

Listed:
  • Michael R. King

    (Richard Ivey School of Business, University of Western Ontario)

  • Carol Osler

    (Brandeis International Business School, Brandeis University)

  • Dagfinn Rime

    (Norges Bank (Central Bank of Norway))

Abstract

Electronic trading has transformed foreign exchange markets over the past decade, and the pace of innovation only accelerates. This formerly opaque market is now fairly transparent and transaction costs are only a fraction of their former level. Entirely new agents have joined the fray, including retail and high-frequency traders, while foreign exchange trading volumes have tripled. Market concentration among dealers has risen reflecting the heavy investments in technology. Undeterred, some new non-bank market participants have begun to make markets, challenging the traditional foreign exchange dealers on their own turf. This paper outlines the players in this market and the structure of their interactions. It also presents new evidence on how that structure has changed over the past two decades. Throughout, it highlights issues relevant to exchange rate modelling.

Suggested Citation

  • Michael R. King & Carol Osler & Dagfinn Rime, 2011. "Foreign exchange market structure, players and evolution," Working Paper 2011/10, Norges Bank.
    • Handle: RePEc:bno:worpap:2011_10
    as

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    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2011/WP-201110/
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rates; algorithmic trading; market microstructure; electronic trading; high frequency trading;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access

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