Currency Desks

According to the venerable Wall Street Journal 73% of all currency transactions are done by 10 of the world’s largest banks. Most of these banks are well known such as J.P. Morgan, Deutsche Bank, UBS, Citigroup, and HSBC. Most banks participating in the interbank fx market will have a separate section known as the Foreign Exchange Sales and Trading Department. Usually this section will have a trading and sales desk. Interbank fx transactions usually involve three steps; taking orders, getting a quote from a spot trader, and relaying that quote to the client.

The Two Major Trading Platforms

Even though online interbank forex transactions are available many larger traders believe they will get better pricing over the phone and some are concerned about security. Typically interbank forex traders use two trading platforms. One is provided by Reuters and the other is provided by the Electronic Brokerage Service or (EBS). Reuters has a long history of handling large interbank fx trades for large customers. The interbank fx is a credit approved system and depends on interbank relationships. The larger the bank the more credit relationships they have with other banks and can offer better pricing.

Pricing Factors

Interbank fx dealers use a variety of factors to determine pricing. These usually include current market rate, volume available at current price levels, and views on how the currency will perform. Forex brokers with access to large amounts of capital are able to establish credit relationships with interbank FX brokers and obtain competitive pricing for themselves and their clients. A well capitalized forex broker is able to obtain competitive pricing from interbank forex brokers no matter how volatile forex markets get. The ideal situation for the average day trader is to establish a relationship with a well capitalized broker with access to interbank fx pricing. A forex broker who trades on the interbank forex market has access to proprietary information that can mean the difference between profit or loss.

Quick Forex Tip: Interbank fx trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank fx trading, s/he must do so through the use of a broker.