Customer Trading in the Foreign Exchange Market: Empirical Evidence from an Internet Trading Platform

46 Pages Posted: 15 Jun 2006 Last revised: 20 Jul 2009

See all articles by Sandra Nolte (Lechner)

Sandra Nolte (Lechner)

Lancaster University Management School

Ingmar Nolte

Lancaster University - Department of Accounting and Finance

Date Written: July 20, 2009

Abstract

This paper analyzes the inter-temporal relationship between currency price changes and their expectations on intra-day frequencies. We examine how price expectations are transmitted into prices by means of order flow and how order flow is affected by past prices (feedback effects). Based on a trading activity dataset from a foreign exchange electronic trading platform, OANDA FXTrade, currency price change expectations are approximated by aggregating very detailed individual order information aiming to present an accurate picture of currency price expectations. We investigate on different intra-day sampling frequencies, whether price expectations and trading patterns of the OANDA FXTrade investors are helpful for predicting future currency prices. Moreover, considering the literature on market microstructure and behaviorial finance, we formulate several hypotheses about the relationship between price changes and order flow as well as the trading behavior and the preference structure of our investors, which we investigate with the help of forecasting studies and out-of-sample prediction criteria.

Keywords: Customer Dataset, Order Flow, Price Changes, Foreign Exchange Market

JEL Classification: G10, F31,C32

Suggested Citation

Nolte (Lechner), Sandra and Nolte, Ingmar, Customer Trading in the Foreign Exchange Market: Empirical Evidence from an Internet Trading Platform (July 20, 2009). Available at SSRN: https://ssrn.com/abstract=908255 or http://dx.doi.org/10.2139/ssrn.908255

Sandra Nolte (Lechner)

Lancaster University Management School ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Ingmar Nolte (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
440
Abstract Views
2,467
rank
65,411
PlumX Metrics