PROFITS AND POSITION CONTROL - A WEEK OF FX DEALING

This paper examines foreign exchange trading at the dealer level. The dealer we track averages $100000 in profits per day on volume of $1 bi llion per day (or one basis point). The half-life of the dealer's posi tion is only 10 min, providing strong support for inventory models. A methodological innovation allows us to identify his speculative positi on over time. This speculative position determines the share of profit s deriving from speculation versus intermediation: intermediation is m uch more important. (C) 1998 Elsevier Science Ltd. All rights reserved .