Interbank Forex Affects Prices
Interbank Forex and lending have far reaching effects. The LIBOR or London Interbank Offered Rate affects lending rates in the wider economy. Both individual and business loans are tied to the LIBOR rate which is currently 1.18%. Interbank Forex involves the buying and selling of large lots of currencies and affects currency values worldwide. Most large banks maintain an interbank Forex trading desk and interbank Forex brokers have access to proprietary information unavailable to retail brokers and day traders.
Competition Ensures Fair Pricing
Like their retail counterparts, interbank Forex brokers research markets, political events, and monetary policies but have the additional advantage of access to information not available to the general public. Competition between banks guarantees fair pricing and tight spreads. Most day traders cannot access the same information available to interbank Forex brokers because clients at interbank forex desks tend to be the world’s largest hedge funds, mutual funds, and multinational corporations who have billions to invest.
Well Capitalized Brokers Have Advantage
A well capitalized retail Forex broker can use that capital to gain access to the interbank Forex market. The more capitalized the retail Forex broker is the more credit relationships they can establish which means they are able to access more competitive pricing for both themselves and their clients. When markets are volatile, as they certainly are now, banks must give their good clients competitive pricing in interbank Forex markets.
Credit Approved System Big Advantage
Another advantage that interbank forex brokers have is that the interbank forex market is a credit approved system where banks trade with each other based on established credit relationships. All banks have access to the best market rates but a bank must have a specific credit relationship with another bank to obtain those same rates. The larger the bank the better pricing they can access. The same holds true for retail Forex brokers; the better capitalized brokers will have better access to interbank forex pricing.
Despite the fact that the average retail forex broker cannot access the same pricing that interbank forex brokers can the interbank market ensures that the forex market maintains its integrity and fair pricing.
Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.
