Commercially Available Order Flow Data and Exchange Rate Movements: Caveat Emptor


  • The authors are grateful to Martin Evans, Richard Lyons, Michael Melvin, Carol Osler, Giorgio Valente, the Editor (Masao Ogaki), and an anonymous referee for helpful and constructive comments on an earlier draft, although responsibility for any remaining errors rests with the authors.


Research suggests that customer order flow should help predict exchange rates. We make two contributions. First, we provide a review of the recent literature on order flow and exchange rate movements. Second, we critically evaluate the practical value of customer order flow data that are commercially available to the wider market, as well as the forecasting properties of inter-dealer order flow. In line with microstructure theory, we find little evidence that the latter can forecast exchange rates, but our results also cast considerable doubt on the practical value to market practitioners of commercially available customer order flow data.