PT  - JOURNAL ARTICLE
AU  - Anatoly B Schmidt
TI  - <strong>Simulation of Execution Costs in the Global Institutional Spot FX Market</strong>
AID  - 10.3905/JOT.2009.4.4.062
DP  - 2009 Sep 30
TA  - The Journal of Trading
PG  - 62--68
VI  - 4
IP  - 4
4099  - https://pm-research.com/content/4/4/62.short
4100  - https://pm-research.com/content/4/4/62.full
AB  - We discuss execution costs in the global spot FX market where only limit orders are permitted. In this work we expand our approach for simulations of maker loss (Schmidt [2008]) to large orders that might notably affect price dynamics if they were submitted in real life. We discern three types of orders: (1) Maker orders: bid (offer) orders submitted at best bid (offer) price until they are completely filled. (2) Auto - match orders: bid (offer) orders submitted at best offer (bid) price but their unfilled remainders are submitted as maker orders. (3) Taker orders: buy (sell) orders submitted at sufficiently high (low) price to be immediately filled. We used the EBS/ICAP market data for EUR/USD in February 2009 for calibrating our simulation model and estimating maker loss. Besides sequential runs upon historical market data, we used also several resampling techniques: bootstrap, Monte Carlo Markov Chain, and random entry. We found that the latter method is preferable for our simulations. Our main conclusion in the early work for one-million orders (the minimal order size in the EBS market) holds also for multi-million orders: expected maker loss is lower than the taker loss.TOPICS: VAR and use of alternative risk measures of trading risk, volatility measures, simulations