The submission of limit orders or market orders: The role of timing and information in the Reuters D2000-2 system

The market microstructure approach to foreign exchange: Looking back and looking forward

“…Daníelsson and Payne (2002) compare indicative and firm quotes and find that indicative prices lagged when the market moved quickly, but indicative bid-ask quotes were generally quite close to firm quotes when 23 sampled at horizons of 5 minutes or longer. Lo and Sapp (2008) show that FX dealers' decision whether to submit limit or market orders in interdealer limit order books is conditional on the previous type of order submitted as well as the recent volatility of the market, consistent with the theoretical predictions from Parlour (1998) and Foucault (1999). More market orders are used early in the trading day when information flows into the market, consistent with Bloomfield et al…”

The Market Microstructure Approach to Foreign Exchange: Looking Back and Looking Forward

“…Daníelsson and Payne (2002) compare indicative and firm quotes and find that indicative prices lagged when the market moved quickly, but indicative bid-ask quotes were generally quite close to firm quotes when sampled at horizons of 5 minutes or longer. Lo and Sapp (2008) show that FX dealers' decision whether to submit limit or market orders in interdealer limit order books is conditional on the previous type of order submitted as well as the recent volatility of the market, consistent with the theoretical predictions from Parlour (1998) and Foucault (1999). More market orders are used early in the trading day when information flows into the market, consistent with Bloomfield et al The end-customer segment of the FX market does not behave consistently with classic microstructure theories regarding liquidity provision.…”

Order aggressiveness and quantity: How are they determined in a limit order market?

“…11 Hypothesis: We expect traders' order placement strategies to change as trading activity varies over the day. For example, as markets are opening, we expect traders will use more aggressive orders to realize gains at this time due to the larger asymmetry of information (e.g., Bloomfield et al (2005) and Lo and Sapp (2008)). As information unfolds throughout the trading day, due to the increased number of counterparties being present and larger trading volumes (e.g., Kaul and Sapp (2009)), we would expect a decrease in the aggressiveness of orders submitted over the day.…”