Template-Type: ReDIF-Paper 1.0
Author-Name: Alain Chaboud
Author-X-Name-First: Alain
Author-X-Name-Last: Chaboud
Author-Name: Dagfinn Rime
Author-X-Name-First: Dagfinn
Author-X-Name-Last: Rime
Author-Name: Vladyslav Sushko
Author-X-Name-First: Vladyslav
Author-X-Name-Last: Sushko
Title: The foreign exchange market
Abstract: This chapter discusses the structure and functioning of the spot foreign exchange (FX) market. The market structure, which has become far more complex over the past three decades, has mostly evolved endogenously as the global FX market is subject to notably less regulatory oversight than equity and bond markets in most countries. Major banks used to dominate liquidity provision, but they have found their role challenged by high frequency trading firms in an increasingly fragmented electronic market. The information structure of the market has also changed. As such, high-frequency cross-asset correlations, especially with the futures market, have become more important. The chapter also discusses the important role of the official sector in the FX market, and it highlights a few special topics such as flash events and the FX fixing scandal. We conclude with some suggestions for future research.
Creation-Date: 2023-04
File-URL: https://www.bis.org/publ/work1094.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1094.htm
File-Format: text/html
Number: 1094
Keywords: financial markets, foreign exchange, market microstructure, dealer intermediation, electronic trading, algorithmic trading
Classification-JEL: F31, G15
Handle: RePEc:bis:biswps:1094