Different Counterparties In A Small Bank's FX Trading

This study examines the USD/EUR-trading of a small bank in Germany over a fourmonth period and thereby complements previous analyses of large market makers. Our data comprehensively differentiates deal-by-deal trading information between other banks, commercial customers and the increasingly important financial customers. Results reveal that these differences play an insignificant role for inventory control. However, information levels between groups clearly differ. Correspondingly, cumulative order flows of incoming interbank and financial customer trades are informative, even at the small bank. Spreads and profits increase for trading with less informed counterparties. Proprietary trading seems to be profitable. JEL-Classification: G15, F31