Analysis of individual traders' strategies in a foreign exchange market: microscopic modeling and corresponding mean-field theory

Abstract

Recent technological breakthrough has enabled us to study the microstructure of financial markets using the high-frequency trading data. In this presentation, we review our recent preprint (arXiv: 1703.06739), in which individual traders's strategies are analyzed on the basis of informative order book data with anonymized trader identifications. We empirically study the trend-following behavior of individual traders on the basis of conditional statistical analysis. We then propose a microscopic model of financial markets on the basis of the empirical finding of trendfollowing of individual traders. We further develop a systematic theory to our microscopic model paralleling to the mathematical formulation of kinetic theory. Finally, the agreement between empirical results and our theoretical predictions are shown in terms of the order book profile and the price movement distribution.