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Spot Arbitrage in FX Market and Algorithmic Trading: Speed is Not of the Essence

Soheil Mahmoodzadeh & Michael Tseng

Market Microstructure and Liquidity2020https://doi.org/10.1142/s2382626620500112article
ABDC B
Weight
0.34

What the paper says

The role of algorithmic traders as arbitrageurs and their impact on price efficiency in the foreign exchange market are examined. Algorithmic traders do not improve price efficiency by detecting and exploiting mispriced currency pairs. On the contrary, algorithmic traders contribute to the creation of possible arbitrage opportunities as a byproduct of intensified competition among liquidity providers. On the other hand, the same market-making competition also prevents the creation of arbitrage opportunities via tightening of spread. Moreover, the leftover inventory problem impedes the implementation of round-trip arbitrage trades — thereby rendering many “arbitrage opportunities” that do appear spurious. The latter two factors explain the reduced occurrence of arbitrage opportunities under the increased algorithmic trading presence observed in data.

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https://doi.org/https://doi.org/10.1142/s2382626620500112

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@article{soheil2020,
  title        = {{Spot Arbitrage in FX Market and Algorithmic Trading: Speed is Not of the Essence}},
  author       = {Soheil Mahmoodzadeh & Michael Tseng},
  journal      = {Market Microstructure and Liquidity},
  year         = {2020},
  doi          = {https://doi.org/https://doi.org/10.1142/s2382626620500112},
}

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Spot Arbitrage in FX Market and Algorithmic Trading: Speed is Not of the Essence

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Evidence weight

0.34

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.00 × 0.4 = 0.00
M · momentum0.80 × 0.15 = 0.12
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.