The relation of trade size and price contribution in a traditional foreign exchange brokered market

Using actual transaction data from the Taiwanese foreign exchange traditional brokered market, we show that the stealth-trading hypothesis does not hold in this market. Large-size trades contribute the most to price change. Examining the role of depth and late day trades, we conclude that this is most likely attributable to the high inventory-control cost in the foreign exchange market and that the survival of traditional brokers in the foreign exchange market may be related to their ability to facilitate large inventory related trades.

► We examine the traditional inter-dealer brokered market for FX with Taiwanese data. ► We show that large-size trades contribute the most to price change. ► We also examine the role of depth and late day trades. ► FX TIDBs’ survival may be related to facilitating large inventory related trades.