PT - JOURNAL ARTICLE AU - Milan Borkovec AU - James Cochrane AU - Ian Domowitz AU - Christopher Escobar TI - The Cost of Liquidity in the FX Market AID - 10.3905/jot.2014.10.1.006 DP - 2014 Dec 31 TA - The Journal of Trading PG - 6--19 VI - 10 IP - 1 4099 - https://pm-research.com/content/10/1/6.short 4100 - https://pm-research.com/content/10/1/6.full AB - This article analyzes current trends in foreign exchange (FX) market liquidity and trading costs. In addition, the authors study the dynamics of various liquidity and volatility measures around the 2014 FIFA World Cup. Their major focus is on the size-adjusted spread cost—that is, the instantaneous cost of sweeping the limit-order book up to a specified deal size. However, the conclusions apply to other liquidity and volatility measures as well. The evidence obtained from analyzing consolidated FX data suggests that a great deal of emphasis should be put on detecting favorable times of the day and making trading decisions accordingly. FX trading costs, if not measured and managed correctly, constitute a significant drag on investment performance. Solutions now exist that could be leveraged to achieve better performance. Focus and measurement are the first necessary steps toward this goal.TOPICS: Currency, analysis of individual factors/risk premia, global