Liquidity in a Limit Order Book Foreign Exchange Trading System

However, technological advances have recently altered the way foreign exchange dealer conduct their business. Bilateral deals still happen, although email conversations are now the norm (typically using the Reuters D2000-1 dealing system). The brokers market has also been revolutionized by the introduction of two electronic broking systems (Reuters D2000-2 and Electronic Broking Services [EBS]) which have effectively taken over from the voice brokers. Cheung, Chinn and Marsh (2000) based on results of a survey conducted in 1998, report that in 1993 the bilateral interbank and voice broker methods of trading shared 95% of total volume equally with the new electronic systems capturing just 5% of the market. By 1998, bilateral interbank trading represented one-third of turnover, voice brokers performed just 20% of deals and the electronic broking systems performed fully 50% of transactions. Informal evidence suggests that the electronic broking systems have continued to increase their share of trading since this date.