As part of the series of the „Finance Research Seminar“, VGSF welcomes Philippe Mueller from Warwick Business School to present his research paper.
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Paper
Request for Quote Trading in the Foreign Exchange Market
We provide the first comprehensive analysis of FX spot trading via request for quote (RFQ) protocols. Execution costs are sharply non-monotonic in competition: bilateral requests obtain the tightest prices, while requesting quotes from two dealers is most expensive. This effect is driven by large clients and financial institutions. Concealing trade direction provides only limited benefits and only when dealers compete. Large clients receive markedly better prices, yet large trades remain costly. The biggest dealers quote most aggressively but still capture most revenues. The evidence challenges standard OTC trading theories and points to a framework in which competition, information design, and market power jointly determine execution prices.
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