Abstract
Impact of trading in the multi-dealer spot FX market is described using a structural vector autoregressive model. The model is derived in terms of return, signed trading volume, signed order book volume, and signed inside-market order flow. The EUR/USD and EUR/JPY data samples with whole-pip pricing and decimal pip-pricing are used. The results show that market impact is determined primarily with the signed trading volume and decays on the ten-second time scale. Signed inside-market order flow may be important for currency pairs with wide bid/offer spreads. Two subtle effects, the limit order book’s “push” and “pull” are described.
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