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Topography of the FX derivatives market: a view from London

Author

Listed:
  • Sinem Hacioğlu-Hoke

    (Federal Reserve Board and Centre for Economic Policy Research)

  • Daniel Ostry

    (Bank of England)

  • Hélène Rey

    (London Business School and Centre for Economic Policy Research)

  • Adrien Rousset Planat

    (London Business School)

  • Vania Stavrakeva

    (London Business School and Centre for Economic Policy Research)

  • Jenny Tang

    (Federal Reserve Bank of Boston)

Abstract

We analyse the behaviour of all financial and non‑financial firms active in the UK FX derivatives market – the largest global centre for currency trading – using transaction‑level data. Based on firm‑level net currency derivatives exposures, we find that UK and EU pension funds, investment funds, insurers, and non‑financial corporations use FX derivatives primarily for hedging purposes, with dealer banks accommodating these clients’ hedging needs. In contrast, hedge funds predominantly utilise FX derivatives to speculate, with their trading activity consistent with carry trade, momentum, and macroeconomic news investment strategies. Lastly, the paper documents many novel facts that should motivate theoretical models.

Suggested Citation

  • Sinem Hacioğlu-Hoke & Daniel Ostry & Hélène Rey & Adrien Rousset Planat & Vania Stavrakeva & Jenny Tang, 2024. "Topography of the FX derivatives market: a view from London," Bank of England Staff Working Paper series 1103, Bank of England.
    • Handle: RePEc:boe:boeewp:1103
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    References listed on IDEAS

    as
    1. Pierre-Olivier Gourinchas & Walker Ray & Dimitri Vayanos, 2025. "A Preferred-Habitat Model of Term Premia, Exchange Rates, and Monetary Policy Spillovers," American Economic Review, American Economic Association, vol. 115(11), pages 3788-3824, November.
    2. repec:cam:camjip:2311 is not listed on IDEAS
    3. Claudio Borio & Robert N McCauley & Patrick McGuire, 2022. "Dollar debt in FX swaps and forwards: huge, missing and growing," BIS Quarterly Review, Bank for International Settlements, December.
    4. Ostry, D. A., 2023. "Tails of Foreign Exchange-at-Risk (FEaR)," Cambridge Working Papers in Economics 2343, Faculty of Economics, University of Cambridge.
    5. Xavier Gabaix & Matteo Maggiori, 2015. "International Liquidity and Exchange Rate Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(3), pages 1369-1420.
    6. Robin Greenwood & Samuel Hanson & Jeremy C Stein & Adi Sunderam, 2023. "A Quantity-Driven Theory of Term Premia and Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(4), pages 2327-2389.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Du, Wenxin & Keerati, Ritt & Schreger, Jesse, 2025. "Decoupling Dollar and Treasury Privilege," SocArXiv 7u9kn_v1, Center for Open Science.

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    Keywords

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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