Profits and Speculation in Intra-Day Foreign Exchange Trading

Alexander Mende () and Lukas Menkhoff

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: This study examines profits and speculation in the USD/EUR trading of a bank in Germany over a four-month period. Dealing activity at the bank generates profits but speculation does not seem to contribute to this. We find that speculative positions fail to become profitable within a 30-minutes' horizon. Also, the suggestion that exchange rate volatility would foster speculative profits cannot be confirmed. To explain daily revenues, neither the bank's speculative trading volume nor its inventory position, but only customer trading emerges as a significant determinant. Furthermore, a spread analysis reveals that there is hardly any room for revenues from speculation.

Keywords: foreign exchange markets; speculation; profits; market microstructure; flow analysis (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2006-06
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Profits and speculation in intra-day foreign exchange trading (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-339

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