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Liquidity Withdrawal in the FX Spot Market: A Cross-Country Study Using High-Frequency Data

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  • 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 three categories of currency pairs. The first category includes the three most actively traded currency pairs (EUR/USD, USD/JPY and EUR/JPY), which have been at the forefront of algorithm trading. The second category includes two smaller G10 currency pairs (EUR/SEK and EUR/NOK) and the third category (USD/MXN, USD/RUB and USD/TRY) includes three of the most actively traded emerging market currencies. 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 'market wisdom' with regards to trading behaviour on electronic trading platforms.

Suggested Citation

  • Alexis Stenfors & Masayuki Susai, 2017. "Liquidity Withdrawal in the FX Spot Market: A Cross-Country Study Using High-Frequency Data," Working Papers in Economics & Finance 2017-06, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    • Handle: RePEc:pbs:ecofin:2017-06
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    Cited by:

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    4. Alexis Stenfors & Masayuki Susai, 2021. "Stealth Trading in FX Markets," Working Papers in Economics & Finance 2021-02, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    5. Alexis Stenfors & Kaveesha Dilshani & Andy Guo & Peter Mere, 2023. "A Model to Quantify the Risk of Cross-Product Manipulation: Evidence from the European Government Bond Futures Market," Working Papers in Economics & Finance 2023-06, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    6. Batten, Jonathan A. & Lončarski, Igor & Szilagyi, Peter G., 2021. "Strategic insider trading in foreign exchange markets," Journal of Corporate Finance, Elsevier, vol. 69(C).
    7. Viktor Manahov, 2021. "High‐frequency trading order cancellations and market quality: Is stricter regulation the answer?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5385-5407, October.
    8. Stenfors, Alexis & Susai, Masayuki, 2021. "Spoofing and pinging in foreign exchange markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).

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    More about this item

    Keywords

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

    JEL classification:

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

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