The Impact of Strategies on the Stylized Facts in the FX Market

One of the most critical design issues that developers face in electronic markets is that of the agents’ trading strategies. In this paper, we aim to examine the impact of trading strategies on the high-frequency Foreign Exchange market. In particular, our goal is to explore the emergence of the stylized facts (statistical properties) in the trading activity when the market is populated with agents with three different strategies: a variation of the zero-intelligence with a constraint (ZI-CV) strategy; the zero-intelligence directional-change event (ZI-DCT0) strategy; and a genetic programming-based (GP) strategy. A series of experiments were conducted in an existing agent-based FX market with these three strategies and the results were compared against those of a high-frequency dataset from the FX market. Our results show that the ZI-DCT0 agents best reproduce and explain the properties and phenomena observed in the FX market real transactions data. Our study suggests that the observed properties of the trading activity in the FX market could be the result of introducing a threshold which triggers the agents to respond to fixed periodic patterns in the price time series.