Premium
New Perspective on FX Markets: Order‐Flow Analysis
Author(s) -
Lyons Richard K.
Publication year - 2001
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/1468-2362.00075
Subject(s) - order (exchange) , economics , flow (mathematics) , perspective (graphical) , foreign exchange , policy analysis , technical analysis , industrial organization , macroeconomics , financial economics , computer science , monetary economics , political science , finance , mathematics , geometry , artificial intelligence , law
Though fundamental and technical analysis are still widely used in foreign exchange markets, a new type of analysis has emerged: order‐flow analysis. Order‐flow analysis uses the flow of buy and sell orders to both explain exchange rates contemporaneously and forecast future movements. This article contrasts order‐flow analysis with the traditional approaches and reviews lessons learned. Most important among those lessons is order flow’s ability to account for the lion’s share of movements in the major floating rates. On the policy front, widespread availability of electronic order‐flow data brings many policy questions within reach for the first time. After reviewing these policy questions, the article closes with a discussion of how FX market institutions are evolving and how this evolution will affect application of order‐flow analysis in the future.