Rapid Currency Trades May Kill Arbitrage, N.Y. Fed Paper Says
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Growth in high-frequency and algorithmic trading may promote efficiency in the spot-trading foreign exchange market, according to a research paper published by the Federal Reserve Bank of New York.
Arbitrage opportunities, or market price differences, occurred in about 1 in every 20 seconds between the euro-dollar, dollar-yen and euro-yen currency pairs during the active part of the trading day during early 2000s, Ernst Schaumburg, a research officer at the New York Fed wrote in a report published today, citing EBS data. The discrepancy has declined since about 2004 and has been almost zero since 2008, he said.