By Sinem Hacioğlu-Hoke, Daniel Ostry, Hélène Rey, Adrien Rousset Planat, Vania Stavrakeva and Jenny Tang

We analyse the behaviour of all financial and non-financial firms active in the UK FX derivatives market - the largest global centre for currency trading - using transaction-level data. Based on firm-level net currency derivatives exposures, we find that UK and EU pension funds, investment funds, insurers, and non-financial corporations use FX derivatives primarily for hedging purposes, with dealer banks accommodating these clients' hedging needs. In contrast, hedge funds predominantly utilise FX derivatives to speculate, with their trading activity consistent with carry trade, momentum, and macroeconomic news investment strategies. Lastly, the paper documents many novel facts that should motivate theoretical models.

Topography of the FX derivatives market: a view from London