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Abstract
This thought-provoking introduction to the dynamic foreign exchange market proposes a framework for explaining currency moves by applying work on exchange rate economics, information economics, and order flow to the microstructure of markets.
Notes
1The fact that there is neither an exchange nor regulation does not mean that no rules exist. Conventions for trading practices and self-governing behavior are present in the FX market as well as in the highly decentralized bond markets.
2Flow information is available from Citicorp, Deutsche Bank, J.P. Morgan Chase and Company, and State Street Bank and Trust Company, to name just a few. It has become an important part of the toolbox available to clients. Each bank markets itself on the strength of its market share and its ability to provide a good snapshot of current and cumulative order flow. Some banks specialize in their ability to provide access to real-money equity trading; others focus on broad market share. How the order-flow data can be aggregated and processed is currently one of the leading questions in practical FX research.