Traders, Market Microstructure and Exchange Rate Dynamics

We report findings from a survey of United States foreign exchange traders. Our results indicate that: (i) The share of customer business, versus interbank business, has remained fairly constant. (ii) The channels by which transactions take place have changed, as electronically- brokered transactions have risen from 2% to 46% of total, mostly at the expense of transactions undertaken by traditional brokers. (iii) The single most widely-cited reason for deviating from the standard market convention on the bid-ask spread is a thin/hectic market. (iv) Half or more of market respondents believe that large players dominate in the dollar-pound and dollar-Swiss franc markets. (v) 60% of respondents believe there is low predictability of exchange rates intraday. Even at medium and long run horizons, only a third of traders believe that there is high predictability