Topography of the FX derivatives market: a view from London

Sinem Hacioğlu-Hoke (), Daniel Ostry (), Hélène Rey (), Adrien Rousset Planat (), Vania Stavrakeva () and Jenny Tang
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Sinem Hacioğlu-Hoke: Federal Reserve Board and Centre for Economic Policy Research
Daniel Ostry: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Hélène Rey: London Business School and Centre for Economic Policy Research
Adrien Rousset Planat: London Business School
Vania Stavrakeva: London Business School and Centre for Economic Policy Research

No 1103, Bank of England working papers from Bank of England

Abstract: We analyse the behaviour of all financial and non‑financial firms active in the UK FX derivatives market – the largest global centre for currency trading – using transaction‑level data. Based on firm‑level net currency derivatives exposures, we find that UK and EU pension funds, investment funds, insurers, and non‑financial corporations use FX derivatives primarily for hedging purposes, with dealer banks accommodating these clients’ hedging needs. In contrast, hedge funds predominantly utilise FX derivatives to speculate, with their trading activity consistent with carry trade, momentum, and macroeconomic news investment strategies. Lastly, the paper documents many novel facts that should motivate theoretical models.

Keywords: FX derivatives; exchange rates; non-bank financial institutions; banks; non‑financial corporations; hedging; speculation; macro news (search for similar items in EconPapers)
JEL-codes: F30 F31 G15 G20 (search for similar items in EconPapers)
Pages: 155 pages
Date: 2024-12-13
New Economics Papers: this item is included in nep-mon and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1103

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