Microstructure of trading systems and exchange rate stability


Impact on the stability of the market

Modern trading systems have lots of different market microstructures, and their number is constantly growing variations. First, different methods of trading. Let's try to classify trading system based on the method of trading. The first group includes all exchange system in the course of trading in which the center is a specialist, ie member of the Exchange are expected to maintain market stability and to act as a broker. The New York Stock Exchange is the most prominent representative of this market structure. The second group consists of the dealer, where traders carry out transactions on its own account and compete. Dealer trading systems may be centralized, for example, the London Stock Exchange, and decentralized, for example, the market for international bonds, which is based on bilateral relations between dealers and customers.

Finally, the third group consists of electronic trading systems. To date, much of the trade in the global forex market is conducted through electronic systems such as Reuters and the Electronic Broking System. MICEX is classified as electronic exchanges. Currency trading conducted in the electronic trading system (SELT) based on today's electronic trading system, built using the common technical and technological solutions. Trading in the SELT conducted under the Unified Trading Session of Interbank Currency Exchange (ETS) and "day" session.

The trading system provides all members of the supply section of equal opportunities and executing orders for purchase and sale of foreign currency, as well as information about the trading. Bidders may conduct transactions on their own behalf and on behalf of clients, as well as its own name and for its own account.

Despite the variety of trading systems, market microstructure theory does not make a fundamental difference between them and performs their aggregate analysis. Microeconomic concepts such as spreads, order, position, etc., are the same for all financial markets, without exception. For this reason, microstructural approach is not interested in specific trading system, in the center of its focus is on the process and outcome of trade. Microstructural theory considers the objects and subjects of trade, terms of submission and execution of orders, etc., in short, everything that is on the micro level influences the efficiency of the market and the pricing of financial assets abstract. Thanks aggregated approach is possible to transfer the results of the analysis from one market to another, without prejudice to the analysis itself.

This feature of the theory of market microstructure, we use and we have to carry isomorphic analogy between the stock and foreign exchange markets. Consider the effect of microstructure, as the order flow, the spread and transparency of trading, the stability of a financial asset prices.

Influence on the pattern of trade orders

Orders, or orders, are one of the most important elements of the exchange of the microstructure. On MICEX currency buying and selling is carried out on the basis of standard orders (bids), excluding the possibility of multiple interpretations. A market order is the SELT agreement to buy or sell a certain number of lots at the best prices in the SELT or at the rate of e-fixing or fixing the exchange rate at the auction with the establishment of the fixing. When you enter a market order in SELT specify standard type of proposal required. Under the limited application in SELT understood agreed to buy a certain number of lots for a price not exceeding the specified maximum purchase price or to sell at a price not less than the specified minimum selling price.