CONCLUSION

In this chapter, we have identified some stylized facts of FX market traders’ behaviour mainly in terms of the seasonalities of their trading activ­ity. We have built agent-based models of traders’ behaviour in which their collective behaviour resembles the collective behaviour of FX market traders.

ACKNOWLEDGMENT

The authors would like to thank Olsen Ltd. for providing the FX market data and wish to thank Dr. Alex Dupuis for helpful discussions on the workings of the FX market.

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KEY TERMS AND DEFINITIONS

Leverage: Also called margin, this is the ratio of margin to the maximum transaction size. For example, with a deposit of $1,000 and a leverage of 20:1, a trader could enter a position value of $20,000.

Long Position: A position is said to be long when the base currency in the currency pair is bought (long) while the quote currency is sold (short).

Market-Maker: In the FX market, a market­maker is a dealer-broker firm which quotes both a bid and an offer price in a given currency pair to the market, in order to make a profit through the bid/ask spread. In addition, market-maker is equipped to buy from, and sell to, investors and other market-makers at those quoted bid and ask prices.

Net Asset Value (NAV): A trader portfolio is defined by the Net Asset Value (NAV). The NAV at time t is the amount of cash in the trading agent’s account, plus/minus all unrealized gains/losses associated with all the account’s open positions.

Short Position: A position is said to be short when the base currency in the currency pair is sold (short) while the quote currency is bought (long).

Unit: In the FX market, a unit is used as a quantity of currency. For example: one unit of EUR is one Euro, and one unit of USD is one United States dollar.

Unrealized Gains/Losses: These are the profits/losses that would be produced if an open position were closed at the current currency pair exchange rate.

This work was previously published in Simulation in Computational Finance and Economics, edited by Biliana Alexandrova- Kabadjova, Serafin Martinez-Jaramillo, Alma Lilia Garcia-Almanza, and Edward Tsang, pages 303-338, copyright 2013 by Business Science Reference (an imprint of IGI Global).