Order choices under information asymmetry in foreign exchange markets

• We study the role that information plays in the FX limit order market.
• Using the EBS trading data of EUR–USD and USD–JPY markets, we examine the price impact of orders by level of aggressiveness.
• We find that patient limit orders contain more information than the other types of orders.

This article investigates the information content in orders submitted to the Electronic Broking Services (EBS) spot foreign exchange broking system. Using intradaily data pertaining to orders for the two most liquid currency pairs, EUR–USD and USD–JPY, the authors examine the price impact of orders by level of aggressiveness in the EBS; the results show that patient limit orders have the greatest impact on changes in exchange rates. The results of post-trade profitability in the EUR–USD market also suggest patient limit orders convey more information than the other two types of orders, implying that informed traders may prefer patient limit orders to aggressive limit orders to exploit information advantages in the EUR–USD market.