Profits and Position Control

Journal of International Money and Finance 17 Ž1998. 97 115

Profits and position control: a week of FX dealing
Richard K. LyonsU,†
U.C. Berkeley and NBER, Haas prepare of Business, U.C. Berkeley, Berkeley, CA 94720-1900, USA

Abstract This story examines foreign exchange business at the star level. The dealer we track averages $100 000 in profits per day on volume of $1 million per day Žor one basis point.. The half-life of the dealers position is only 10 min, providing strong corroborate for inventory models. A methodological innovation allows us to invest his speculative position over time. This speculative position determines the per centum of profits deriving from speculation versus intermediation: intermediation is oftentimes more important. 1998 Elsevier Science Ltd. All rights reserved. JEL classifications: G15; F31

Empirical work on FX microstructure is still in its early stages. The earliest work apply futures data since that was available at high frequencies.1 In FX, however, the futures commercialise is both much smaller than spot and tightly tie in to spot through arbitrage. Moreover, early data sets did not take a leak sufficient granularity to capture agent heterogeneity, the hallmark of the microstructure approach.



exert on the spot market itself grew in the early nineties with the availability of quotes on an
U †

Tel.: q1 510 6421059; fax: q1 510 6424700; e-mail: lyons@haas.berkeley.edu I thank the following for helpful comments: Jeff Bohn, Frank Diebold, Bernard Dumas, Mark Flood, barb Meese, Mark Ready, Andrew Rose, Patrik Safvenblad, Matt Spiegel, Avanidhar Subrahmanyam, ¨ and seminar participants at Berkeley, UCLA, the federal official Reserve Board, the Federal Reserve Bank of New York, the NBER, and the Stockholm School of Economics. I also thank Jeff Bohn for valuable research assistance. Parts of this paper were written while visiting the IIES at Stockholm University and I thank them for their hospitality. Financial assistance from the National Science entry and...If you want to get a full essay, order it on our website: Orderessay



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