2 – Characteristics of EBS Market

The previous lesson shows a general picture of Foreign Exchange Market and demonstrates that a similar product can be traded in different venues. This lesson only focus on a specific exchange: EBS/ICAP Market.

As a remember, I am currently Ph.D. candidate in Takayasu Laboratory and we are especially interested in research concerning Econophysics. This field can be defined as a research field that use methods developed and used by physicists in order to study economic problems. We have access to two types of data: Level 5 (L5) and Order Book (OBD) Data. More details concerning differences between those data can be found in researches section.

In a typical exchange market, we called electronic order book the location where buying and selling orders meet. Back in days (before computers), exchange markets had intermediary directly on the trading floor. Those intermediaries, specialist, had the responsibility to receive calls from investor and matching them together. In consequence, the specialist had a book that represents every willing buyer on one side and willing seller on the other side. Right now, there is no specialist anymore on trading floors and matching of orders are done electronically. If a buying order (blue) is higher than selling order (red), there is a transaction executed following price/time priority.


There are strong similarities between a typical electronic exchange and EBS/ICAP exchange. However, readers should realize that EBS/ICAP market is more like an open over-the-counter market (Forward contracts).

Typical Exchange Market:

Most exchange markets have similar rules even if some markets have their own characteristics. For example, the NYSE does not halt trading during lunch time. On another hand, Tokyo Exchange does stop during one hour every day (11:30 to 12:30 local time).

  • Futures are virtually traded 24-hours per day (23 hours to be fair) except during holidays and week-ends.
  • Only the expiration of the product can limit the lifetime of an order. Then, an order submitted on Friday will still be active when the market open on Monday.
  • Orders follow price/time priority. At the same price, an order arrived earlier will be filled first. There is some exception depending of the type of limit orders submitted but we won’t discuss about them here.
  • There are two types of order: market and limit order. A market order is immediately match with another limit order. Only the side (buyer/seller) and volume is set-up with market orders. Limit orders must indicate the price they want to trade and the volume.
  • Products traded are standardized and credit risks are assumed by the central counterparties.
  • Single main platform (server) match incoming orders and build the electronic order book.

EBS Market:

General characteristics of typical exchange market also hold in EBS Market. However, there is technical differences summarize below.

  • This market is also open 24-hours per day exempt during holidays and week-ends. It starts on Sunday 21:00 (GMT) to Friday 21:00 (GMT).
  • At the end of the week, all remaining orders are deleted from the electronic order book. Market participants are allowed to post new orders only from the next Sunday 21:00. In brief, the order book is “clean” at the beginning of the next week which is not the case in a typical exchange market (orders can stay much longer than one week).
  • Limit orders can be cancelled only if their lifetime is higher or equal to 250 milliseconds. It means market participants see their order frozen during that time (impossible to cancel or update it).
  • As described in lesson 1, market participants in EBS market must have a private access to the EBS/ICAP network.
  • Minimum trading size (amount) is usually one million of the base currency. For example, you will need to set a size of one million US dollar for USD/JPY currency pair. As comparison, the minimum size (amount) in CME for FX is approximately 125,000 US dollar.
  • There is no market order in EBS market. Instead, they are called Hit-Order. Market participants submitting these orders must set a price and amount. If the buying (selling) order is not matched with a selling (buying) order, there is instant annihilation of this order. In brief, it is impossible to hit many layers of order in using a massive Hit-Order.
  • Every trader must already have a credit agreement with each other if they want to transact. Sometimes, it is possible to observe negative spread (best buying order price > best selling order price). The trader assume himself credit risks.
  • Multiples main platforms (servers) match incoming orders and build the electronic order book. Those servers are located in London (LN), New York (NY) and Tokyo (TY). In addition, there is a central server that links orders previously sent in every localisation. More details are giving in the section below.

Localisation of EBS Platforms:


In summary, even if banks can transact in both markets, they must follow different rules. Lesson 3 will present basic statistics on different currency pairs.

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