Dynamics Of The Top Of The Order Book In A
Global FX Spot Market
Author(s)
E. Howorka & A. B. Schmidt
Abstract
The order lifetime at the top of the order book is defined as the time between the
order arrival at the top of the order book and its removal from the top of the
order book. In this work, the average order lifetime in the EBS FX spot market is
analyzed for two corresponding four-week periods in 2004 and 2005. The
following currency pairs, EUR/USD, USD/JPY, USD/CHF, EUR/JPY, and
EUR/CHF, are considered during the most liquid period of the working day,
7:00 – 17:00 GMT. Generally, the distribution of orders with a given lifetime at
the top of the order book decays exponentially at short times. However, this
decay follows a power law at longer time periods. The crossover times between
the two decay forms are estimated. It is shown that the decays have steepened
and the order lifetime has become shorter in 2005. In particular, 47.9% of the
EUR/USD orders and 34.7% of the USD/JPY orders live less than one second on
the top of the order book. Two possible causes of the power-law asymptote are
indicated: orders with amounts significantly higher than the average value and
the specifics of credit relations among the EBS customers. The only exclusion
from the described pattern is the order dynamics of EUR/CHF in 2005 that does
not have an exponential decay.
Keywords: high-frequency FX market, order lifetime.
1 Introduction
The global inter-bank FX spot market has dramatically changed since early
1990s when the electronic broking systems were introduced. Before that, a trader
could either contact another trader directly (using telephone or a Reuters
electronic system 2000) or trade via \“voice brokers” who were collecting and
matching the bid and offer orders over dedicated telephone lines. The electronic
Keywords
high-frequency FX market, order lifetime.
Related Book
Other papers in this volume
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