1 / 26

Forex in the Future

Global Asset Allocation and Stock Selection. Forex in the Future. Campbell R. Harvey Duke University, Durham, NC USA National Bureau of Economic Research, Cambridge MA USA http://www.duke.edu/~charvey. Forex in the Future: -----Current landscape. Market

dane-hodges
Download Presentation

Forex in the Future

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Global Asset Allocation and Stock Selection Forex in the Future Campbell R. Harvey Duke University, Durham, NC USA National Bureau of Economic Research, Cambridge MA USA http://www.duke.edu/~charvey

  2. Forex in the Future:-----Current landscape Market $1.500 trillion in forex transacted every day* $0.020 trillion stocks transacted on NYSE *Does not include forwards, swaps, and options!

  3. Forex in the Future:-----Current landscape Trading Basic technology has not changed in decades (“request for quote” method) • Phone around to banks/investment banks and get a quotation • Take the best price

  4. Forex in the Future:-----Trading cost Components • Clearing fee (say on 1 million €) $9-25 • Bid-ask spread largest component • 90% of the time 2-5 pips ($200-500) • median is 5 pips

  5. Forex in the Future:-----Trading cost Frequency in %

  6. Forex in the Future:-----Trading cost Why are trading costs so high? Banks provide: • Clearing • Credit monitoring • Bear inventory risk Plus, they make a pile of money!

  7. Forex in the Future:-----New forces in the market Two consoritia: FXall and Atriax Similar product, different partners • Using the Internet, press a button and get the best two way quote (bid-ask) from consortia members • FXall has been around one year • Atriax launched in July 2001

  8. Forex in the Future:-----New forces in the market Two consoritia: FXall and Atriax Advantages: • Saves time in doing phone around • Electronic execution

  9. Forex in the Future:-----New forces in the market Two consoritia: FXall and Atriax Disadvantages: • Does not necessarily reduce spread cost • Makes collusion among consortium partners a possibility (current DOJ investigation) • No cross quotes between the two consortia

  10. Forex in the Future:-----New forces in the market Two consoritia: FXall and Atriax Disadvantages: Generally, it is a bad business idea to request a quote from a consortium – you are asking for trouble. Overall, it is the same old market facilitated with the Internet

  11. Forex in the Future:-----New forces in the market Others: Currenex Advantages: • Independence

  12. Forex in the Future:-----New forces in the market Others: Currenex Disadvantages: • Must take bid or ask • Does not accommodate a limit order book (like NASDAQ trading)

  13. Forex in the Future:-----New forces in the market Reverse auction Forexster.com • Applied for several patents for a reverse auction type of system for FX trading • Two types of systems • Type 1 client communicating to many banks • Type 2 many clients communicating with bank

  14. Type 1 unit Bank 1 Bank 2 Client Forexster Bank 3 Bank 4 Bank 5

  15. Type 1 unit Bank 1 Reverse auction Bank 2 Client Forexster Bank 3 Bank 4 Bank 5

  16. Type 2 unit Client 1 Client 2 Client 3 Client 4 Forexster Bank Client 5 Client 6 Client 7 Client 8 Client 9

  17. Type 2 unit Client 1 Client 2 Client 3 Client 4 Forexster Direct trade Bank Client 5 Client 6 Client 7 Client 8 Client 9

  18. Type 2 Type 1 Bank Client

  19. Forex in the Future:-----New forces in the market Further reading • Ben Wright, “Unlocking the C2C forex riddle” Euromoney.com July 2001 • Jennifer Morris “Forex goes into future shock” Euromoney October 2001 • Joff Wild “Europe lags US in business-method patents” Euromoney March 2002 • Tessa Oakley “Forexster throws down client-to-client patent challenge” Euromoney March 2002

More Related