Profits and position control: a week of FX dealing

This paper examines foreign exchange trading at the dealer level. The dealer we track averages $100000 in profits per day on volume of $1 billion per day (or one basis point). The half-life of the dealer's position is only 10 min, providing strong support for inventory models. A methodological innovation allows us to identify his speculative position over time. This speculative position determines the share of profits deriving from speculation versus intermediation: intermediation is much more important. (C) 1998 Elsevier Science Ltd. All rights reserved.