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Algorithmic Trading Behaviour and High-Frequency Liquidity Withdrawal in the FX Spot Market

Author

Listed:
  • Alexis Stenfors

    (Portsmouth Business School)

  • Masayuki Susai

    (Nagasaki University)

Abstract

This paper studies the frequency and speed of limit order cancellations in the FX spot market for EUR/USD, USD/JPY and EUR/JPY. By investigating both 'market-specific' and 'order-specific' drivers of liquidity withdrawal, we report several findings that could serve to question traditional market microstructure theory as well as conventional anecdotes from financial market participants. Overall, it appears as if limit orders with characteristics more likely to be submitted by algorithmic traders are perceived to be more informed or predatory than orders submitted human traders - thus acting to trigger more, and faster, limit order cancellations.

Suggested Citation

  • Alexis Stenfors & Masayuki Susai, 2017. "Algorithmic Trading Behaviour and High-Frequency Liquidity Withdrawal in the FX Spot Market," Working Papers in Economics & Finance 2017-04, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    • Handle: RePEc:pbs:ecofin:2017-04
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    References listed on IDEAS

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    More about this item

    Keywords

    market microstructure; limit order book; foreign exchange; high-frequency trading;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F3 - International Economics - - International Finance

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