Retail investors in the foreign exchange market

Abstract

The foreign exchange market (FX market, forex) is the largest and the most liquid market of the world. Up to the late 1990s, the FX market was dominated by financial institutions and large corporations, which conducted FX transactions for hedging, speculation and arbitrage purposes. While these participants still constitute the most important part of the market, the role of retail investors has been increasing since the beginning of the 2000s. FX trading conducted by retail investors has become significant enough to be included in the FX market statistics, provided by the Bank for International Settlements (BIS). The data collected by BIS is the basis for the analysis conducted in this paper. The main objective of the study is to examine the factors which contributed to the emergence and development of the FX retail market as well as to analyse its size and structure in comparison with the total FX market.

Algorithmic trading with directional changes

“…The higher number of participants coupled with local and international supply-demand factors, such as economic, political and psychological, makes Forex forecasting a challenging task (Spero and Hart 2009;Nassirtoussi et al 2011;Frieden 2014;Bilgin et al 2020;Pascual-Ezama et al 2014;Petropoulos et al 2017). These challenges include: (i) short-term pronounced price fluctuation; (ii) a high trading volume of over 6.6 trillion USD per day as of 2019 (Wooldridge 2019) in a market open 24 h/day from Sunday 20:15 GMT to Friday 22:00 GMT across the globe (Sobol and Szmelter 2020); (iii) low profit margin in comparison to fixed income trading (Petropoulos et al 2017); and (iv) noisy and chaotic signals, making separation of uninteresting features from trends difficult (Abu-Mostafa and Atiya 1996; Kamruzzaman et al 2003).…”