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Trade Interbank FX

The interbank forex market is responsible for a majority of daily currency trades which total about $4 trillion dollars globally. Because of the size of the interbank forex market it has a major impact on global currency exchange rates. Interbank forex dealers have access to better spreads than the average investor because of the size, or ‘line’ of the transactions. The global forex market has no central exchange and regulation is relatively light. Despite the light regulation the interbank forex market is orderly and efficient. 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.

Many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. George Soros is one famous investor who has made billions trading currencies and has been very successful. Soros has been so successful that he has been called “the man who broke the Bank of England.” Market participants trade interbank fx for a variety of reasons. Large corporations may want to obtain favorable exchange rates for offshore transactions. Real estate investors and securities investors may also want to take advantage of favorable exchange rates. Since forex markets are almost recession proof they are becoming more popular to offset losses in stock and commodity markets. Interbank forex brokers will usually offer investors advice and timely market information and may provide advice about investment strategies. The spot market plays an important part in interbank forex markets. In spot markets currencies are traded and delivered immediately. The forward market is also important to those who trade interbank fx. Forward currency contracts are agreements to sell currencies at a price and delivery time agreed upon by both parties.

Banks will quote investors a bid and ask price based on anticipated currency exchange rate movements. Other participants in the interbank forex market include companies, forex brokers, smaller banks, hedge funds and traders. Forex brokers act as intermediaries between these investors and the interbank forex trader. Forex markets have been called by some economists a perfect example of ‘perfect competition’ where no market participant is large enough to set prices for everyone else. Since currencies are always being bought and sold forex markets are perceived as recession proof. Thanks to the internet new forex traders can learn all of the aspects of forex trading for free online and participate in this dynamic and lucrative market.

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Interbank FX Trader

Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Since about $4 trillion dollars is traded every day the amount of money involved in interbank fx transactions is astounding. Since a majority of large currency trades are conducted by interbank fx traders the influence on currency markets is profound. Other factors that influence exchange rates include political events, economic data such as employment reports, retail sales data, GDP, consumer confidence, housing data and even natural disasters. Although there is no physical exchange for global currency trading the three major centers for interbank trading are London, New York and Tokyo. London has been a center for interbank currency exchange for almost two centuries.  An interbank fx trader typically works for a large bank or financial institution. Interbank fx traders have access to the best spreads which are normally not available to small investors.

The typical interbank fx trader usually conducts transactions in excess of $1 million dollars. There are several participants in the interbank fx market and transactions take place for a variety of reasons. Corporations may want to lock in favorable currency exchange rates for large offshore transactions. Large real estate and securities investors may want favorable rates for large transactions. Wealthy individuals may want to profit from fluctuations in currency exchange rates. Famed investor George Soros has made billions trading currencies on the interbank forex market. In addition interbank fx traders conduct transactions for the bank’s own accounts. Traditionally interbank fx traders conducted business over the telephone but in the late 1980’s electronic trading was introduced making large trades possible in seconds. Generally an interbank fx trader will call clients with current information and advice on how to profit from that information and may offer tailored advice on trading strategies.

The interbank fx market was created in the early 1970’s when nations abandoned the Bretton Woods System which set fixed rates for currencies. Currencies were allowed to float freely making forex trading for profit possible. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition which means in theory that no market participant is large enough to set currency prices. Forex trading has become very popular with smaller investors in recent years. Because forex markets offer investors the opportunity to profit during troubled times many investors trade forex to offset losses in other markets.

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Interbank FX Reviews

The forex, or FX, market is dominated by the interbank forex market. The world’s ten largest banks are responsible for about 53% of all daily currency transactions. Since about $4 trillion dollars is traded daily the amounts handled by the largest banks is astounding and exceeds the total national debt of most nations. The interbank market is the top tier and level of access for currency traders. The interbank forex market has no central exchange and is open for business twenty four hours a day and is closed on weekends. In the past most interbank transactions were done by telephone but the advent of electronic trading allows currency transactions to be made in a matter of seconds. The use of electronic trading has led directly to trading forex on the internet and has allowed small investors to access forex markets.

Interbank forex dealers usually work for a large bank and trade for the bank’s account and for bank clients. Usually interbank dealers trade amounts of more than $1 million dollars. The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the interbank market and the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These sites give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability, investment track records and will rate the overall services offered by interbank brokers.

Trading platforms play an important part in currency markets. Most brokers offer investors their own software trading platforms. Generally interbank FX reviews will rate the various trading platforms offered by interbank brokers. Brokers will usually provide clients with a wide variety of investment options.  Most interbank forex dealers will offer investors standard currency lots and may also provide mini accounts for beginners and small investors.  Forex trading can be very rewarding and selecting the right broker is essential. Most interbank FX reviews will rate the training and educational services provided by brokers. Most of the time these are free but some brokers offer intensive mentoring programs for a fee. There are a lot of investment opportunities available in currency markets that cannot be found in traditional stock and commodity markets. Reading interbank FX reviews will help investors make sure they select the right broker.

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Interbank Forex Trading

The forex market is the largest in the world and about $4 trillion dollars is traded daily. The forex market is dominated by large banks that have a profound effect on currency exchange rates. The interbank forex market accounts for a large majority of daily currency transactions.  Ten major banks account for most interbank forex transactions including Deutsche Bank, Barclay’s, UBS AG, Citibank, JP Morgan, Royal Bank of Scotland, HSBC, Credit Suisse, Morgan Stanley and Goldman Sachs. The interbank market is the top tier of currency markets and pricing available to the largest banks are usually not available to smaller investors. The level of access in currency markets is determined by the size of the transaction or ‘line.’ The very top tier of the interbank forex market accounts for 53% of all daily currency transactions. Most interbank trading desks are proprietary and outsiders do not have access to the information available to interbank forex traders.

Interbank forex 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.  Traditionally interbank forex trading was conducted by telephone but the advent of electronic trading in the 1980’s led directly to internet forex trading. Since electronic transactions are fast they allow retail forex brokers and small investors to spot pricing trends set by interbank traders. Most electronic interbank forex trading is done using professional dealing networks such as Electronic Broking Services or EBS Spot Dealing system and the Reuters Dealing 3000 Spot Matching system.

Interbank forex trading involves a variety of participants who trade currencies for a variety of reasons. Some investors may want to facilitate foreign real estate or security transactions and can get the best rates in the interbank market. Corporations may want to ensure favorable exchange rates for offshore transactions. High net worth individuals may want to engage in speculative transactions and can get the best rates from interbank forex traders. Although the interbank market may be the top tier and may seem unapproachable to most investors retail forex brokers gain a lot of valuable information from closely observing trends in interbank markets and will then pass along their interpretations to clients resulting in successful trades.

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Interbank FX Trading

The interbank forex market dominates global currency markets and accounts for a majority of the daily volume of $4 trillion dollars. Most of the total daily volume is done by about ten major banks. Some of the largest market participants include, Deutsche Bank (NYSE:DB), UBS (NYSE:UBS), Citigroup (NYSE:C) and HSBC (NYSE:HBC). Each individual bank is different but most banks have a separate foreign exchange trading department. The foreign exchange department trades on behalf of the bank’s own accounts and for large clients and investors. The interbank market accounts for most turnover and speculative trading.  Central banks are also major players in the interbank fx market. Central banks control the money supply, interest rates and inflation. Central banks can use their reserves to stabilize markets. London is the chief interbank fx trading center and usually a currency’s quoted price is the London market price.

There are three main centers for interbank fx trading, London, New York and Tokyo. Most interbank trading takes place on one of these financial centers. Since currency markets have no central exchange there is little cross border regulation and the interbank fx market is self regulating. In the United Stated foreign currency options are regulated and are traded on the Philadelphia Stock Exchange. Banks may deal with each other directly or may trade electronically. There are two main constituents that make up the interbank fx market; the spot market and the forward market. The spot market is where currencies are traded and delivered immediately. In the forward market contracts are made for future delivery of currencies at a specific date and time.

Since there is no actual central exchange for the interbank fx market currency exchange rates are set my market makers. An interbank market maker will quote a bid and ask price based on anticipated changes in currency exchange rates. Since interbank transactions are so large currency exchange rates are profoundly affected by market makers. In the interbank fx markets spreads, which are the difference between the bid and ask prices, are sharp and not available to the average investor. The forex market is divided into several levels of access and at the top is the interbank fx market. Usually levels of access are determined by the size of the transaction or ‘line.’ Although the interbank market is the top tier an increasingly important part is being played by individual investors who are taking advantage of the numerous opportunities offered by forex markets.

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Aussie, Kiwi, Loonie Gain on Rising Commodities

Low Fed Rates Could Fuel Dollar Rally

Some currency Analysts believe that the Federal Reserve’s recent decision to keep rates at record lows could fuel a dollar rally against the euro and the British pound throughout 2010. Normally low central bank rates are negative for currencies but experts believe if the Fed’s low rated help to promote growth in the US economy that outpaces the euro zone and the UK the dollar will attract save haven investors throughout 2010. Recent economic reports indicate that the US is recovering from the recession at a faster pace than the euro zone and Britain. Many expect commodity linked currencies to rally vs. the dollar as commodity prices rise. Commodity linked currencies include the Australian dollar, the New Zealand dollar and the Canadian dollar. All of these countries have already raised rates and all have commodity driven economies. More than a few currency experts believe that the Canadian dollar will achieve parity with the US dollar sometime this year.

Aussie at Three Week High

On March 29th the Aussie dollar gained in advance of a report expected to show a rise in retail sales. The Aussie hit a three week high and most experts believe the Australian central bank will raise rates to 4.25%. The S&P/GSCI Index of commodities gained 0.5% and is near the highest level since March 19th prompting a rally in commodity linked currencies. The Aussie dollar gained 0.4% on the greenback trading at 92.16 U.S. cents and gained 0.6% on the euro trading at A$1.46. The Japanese yen fell 0.5% vs. the Aussie and traded at 85.24 per Australian dollar. The Canadian dollar rose 0.7% to C$1.0196 per U.S. dollar and most expect the currency to hit parity with the US dollar by June 2010.

Australian Central Bank to Raise Rates

Benchmark rates in Australia are currently 4% and are 2.5% in New Zealand. Australia is also in the enviable position of being one of China’s biggest suppliers of raw materials. These rates compared to US rates near zero and 0.1% in Japan makes the higher yielding Aussie and Kiwi attractive to investors. Reserve Bank of Australia Governor Glenn Stevens said that rates may be increased soon to control inflation. Stevens also said, “It’s not wise to leave interest rates right down at rock bottom any longer than you need. It would be not doing people any favors to have a prolonged period of very low rates and then hammer them unexpectedly.” The Kiwi gained in advance of a government report that is expected to show that home building approvals rose in February.

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.

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Pound Gains on Jobs Data

UK Unemployment Claims Fall

The pound rose on Wednesday after better than expected UK jobs data. The UK government reported that unemployment claims fell by 32,000 in February the largest decline since 1997. The pound has been hammered by recent housing data and fears that upcoming elections could produce political gridlock crippling the nation’s ability to deal with economic problems. Commenting on the new employment figures Bank of Nova Scotia currency strategists Camilla Sutton and Sacha Tihanyi stated, “This is the fastest pace of decline in jobless claims since 1997. The pound has definitively broken to the topside and is challenging resistance.” The euro surrendered recent gains after a German government official said that EU finance ministers had made “no decisions” regarding aid to Greece. Ulrich Wilhelm said in Berlin that no decisions about aid to Greece are likely to be made at the upcoming EU summit. Opposition to aid for Greece is widespread in Germany. Boris Schlossberg of GFT Forex said, “The Germans have been the primary sticking point in creating a pan-European solution. Any resistance casts doubt on solving the Greece problem and helps push the euro lower.”

Dollar and Yen Pressured by BOJ, Fed Decisions

The US dollar and the yen fell after decisions by the Bank of Japan and the US Federal Reserve. The BOJ doubled its loan program designed to fight deflation and the US Federal Reserve said it would leave interest rates at historic lows.  Rising oil and commodity prices combined with a rise in risk sentiment lifted commodity linked currencies such as the Canadian dollar, the Aussie dollar, Kiwi dollar and the S African rand.  Andrew Wilkinson of Interactive Brokers Group stated, “Everything is doing OK against the dollar and the yen except the euro. Greece just won’t go away, and that doesn’t sit well with the market.” Twenty years ago Harvard University Professor Martin Feldstein called the newly created euro an “economic liability” and now warns that Greece’s austerity measures will fail and that Greece may have to exit the European Monetary Union to fix its massive debt problems. Feldstein said, “The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy.” Feldstein has been an adviser to several US Presidents starting with Ronald Reagan.

Weak Euro Causing Problems

The weak euro has caused problems for European manufacturers. Since most raw materials such as oil are priced in dollars imported goods are more expensive and could lead to a rise in consumer prices. Until the EU comes up with a concrete solution for the Greek debt crisis downward pressure on the euro is expected to continue.

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.

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Commodity Currencies Pressured by IMF Gold Sale

US Dollar Close to Seven Month High

The US dollar is now close to a seven month high against a basket of major currencies after released minutes of the FOMC meeting showed that Fed officials discussed exit strategies from stimulus programs. The euro fell against the dollar and is now near a nine month low hit earlier this week. Released Fed minutes revealed that many Fed policymakers want to begin selling securities as the US economy improves. The greenback was also lifted by data that showed U.S. housing starts rose to a six-month high in January and industrial production increased. Johan Javeus of SEB in Stockholm stated, “It hasn’t been a huge move but the Fed minutes have helped the dollar as they were perceived as hawkish. Whereas before there was a sense that the ECB would be ahead of the Fed in raising rates it now looks increasingly likely that the Fed will move before the ECB.”

Gold Prices Drop

Commodity linked currencies were pressured after the International Monetary Fund said it planned to sell gold on the open market. The IMF plans to sell 191.3 tons of gold to raise funds for lending. Spot gold prices fell dragging down the Aussie dollar. The Aussie fell 0.4% to $0.8957 and the Kiwi dollar fell 0.5% to $0.7000. Commodity prices were affected by a stronger dollar and the IMF announcement. Gold fell to $1,100 an ounce. Jonathan Cavenagh of Westpac stated, “The gold sale news is weighing on the Aussie especially against the U.S. dollar which is seeing a biddish tone.

Greek Crisis Threatens Euro Zone Assets

The pound fell 0.5% vs. the dollar to $1.5587 after data showed public sector borrowing at 4.339 billion pounds last month causing the first January deficit since 1993. Tom Levinson, currency strategist at ING stated, “Everyone is very focused on the euro zone fiscal situation at the moment, but the UK is in every bit as bad a shape.” Greek budget deficits and the lack of a coherent plan by EU officials have hammered the euro in currency markets. Last week EU ministers issued vague statements that left investors worried about the integrity of euro zone assets. German opposition to any kind of aid to Greece remains fierce in Germany but should Greek problems threaten the euro Germany may have no choice but to help Greece. This year Greece’s debt will reach 120% of GDP and must try to sell 53 billion euros in debt this year. The euro is likely to remain under immense pressure until the Greek crisis is resolved.

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.

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Dollar Rallying in Tandem With Stocks

Dollar Sheds Risk Trading

A Bloomberg article has pointed out that the US dollar is now rallying ‘in tandem with stocks’ for the first time since the demise of Lehman Brothers. For most of the past year the dollar has been traded on risk sentiment. Some currency experts believe that the worst may be over for the dollar. The dollar, equities and raw materials are on track for their largest two month gain since 2008 when the recession reared its ugly head. The correlation between stocks and the dollar reflects investor confidence that the US will be the first to recover from the current global recession. In the past the dollar gained as investors sought safe haven from economic turmoil. The dollar weakened when investors took advantage of record low Fed rates to finance carry trades. The dollar has also benefited from year end profit taking.

Fed to Withdraw Stimulus Packages

On December 4th the news that the US unemployment had fallen the most in three years pushed the greenback higher as investors bet that the positive data would convince the Federal Reserve to raise rates. The DXY rose 1.7%, the largest gain since January 2009 when UK banking troubles increased the demand for the safe haven offered by the dollar. Dennis Gartman wrote in the Gartman Letter, “We are witnessing a watershed shift in sentiment regarding the dollar. We do not use the term watershed often, but when we do we mean it.” Federal Open Market Committee said on Dec. 16 that it would end most emergency measures by March 2010. The Fed cited “improvements in the functioning of financial markets” The Fed cited, “improvements in the functioning of financial markets” and stabilizing labor markets as reasons for the move. Despite speculation the Fed said it would leave rates “exceptionally low” for an “extended period.”

Euro Zone Banking Troubles

The euro weakened in currency markets after the European Central Bank said that financial institutions may have to write down an additional 187 billion euros ($268 billion USD). The central bank’s loans to property companies and eastern European nations may threaten recovery in the euro zone. Mansoor Mohi-uddin of UBS AG wrote, “Sentiment in the euro zone will suffer from the fiscal troubles of its weakest members. This hurts the euro as it makes it less likely the ECB will be in a position to raise interest rates if one of its member countries faces the threat of defaulting on its debts in future.”

Quick Forex Tip: Interbank forex 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 forex trading, s/he must do so through the use of a broker.

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