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Profits and Position Control: A Week of FX Dealing

Richard Lyons ()

No RPF-273, Research Program in Finance Working Papers from University of California at Berkeley

Abstract: This paper examines foreign exchange trading at the dealer level. The dealer we track averages $100,000 in profits per day on volume of $1 billion per day (or one basis point). The half-life of the dealer's position is only ten minutes, providing strong support for inventory models. A methodological innovation allows us to identify his speculative position over time. This speculative position determines the share of profits deriving from speculation versus intermediation: intermediation is much more important.

Date: 1997-10-01
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