Geir H. Bjønnes Norwegian School of Management
Geir H. Bjønnes Norwegian School of Management

Electronic FX Trading – Influencing dealer behaviour?

Geir Bjonnes and Dagfinn Rime discuss how the change in structure to the FX markets that electronic broking has brought about has influenced what dealers can do and know.

First Published: e-Forex Magazine 15 / Marketplace / July, 2004

Dagfinn Rime* Norges Bank The two most important qualities of any financial market are liquidity and how information is incorporated into prices (price discovery). In the FX market these two are determined by the interaction and behaviour of dealers. Dealer behaviour is (partly) a function of market structure because market structure governs what dealers can do and know.The introduction of electronic brokers in 1992 changed the structure of the FX market dramatically. In 1992 it was a quote-driven dealer market; today it is primarily an order-driven dealer market. We discuss how this change in structure has influenced what dealers can do and can know, the behaviour of dealers, and implications for price eciency and liquidity.We start by discussing the structure of the pre-electronic broker market by way of comparison. The figure shows a general view of the structure of the FX market.Dealer behaviour prior to the electronic brokers In 1992 dealers traded with each other either directly, e.g. on Reuters...continued

Exclusive Content

The full article is only available to current subscribers. Click here to sign in or subscribe by clicking here