Forex Interbank: An Overview
Forex Interbank is the top level of the foreign exchange market. At this level of currency trading, the difference of bid and ask prices, called a spread is quite small. This means even major currencies like the Euro and USD could be traded at extremely favorable rates. There is no international body that determine who does and does not get into this forex trading tier. However, market forces dictate very favorable rates available to these firms to the sheer volume of trade they can generate. Thus the bid and ask prices for major currencies might have a difference of only less than four pips and smaller currencies might have no difference at all.
The rates at forex interbank are often not available and often not at all known to those outside this level. This de-facto exclusion of outsiders works mostly to the benefit of the institutes trading at this level. The top three institutions at the forex interbank level are Deutsche Bank, UBS AG and Citigroup. Between just the of these companies, they are responsible for around 40% of forex currency transactions in the world. The other institutions at forex interbank level include such notables as HSBC, Goldman Sachs and Merril Lynch.
Today, currency trading at the forex interbank level accounts for more than half of all forex trading taking place in the world today. Billions can be traded by a single institution and all the trading at the interbank level can reach into the trillion marks. Part of this trading is done for clients of these institutions and part of it done for the bank itself.
Up to less than a generation ago, a sizable volume of business was conducted by foreign exchange brokers namely in assisting in forex interbank level trading and for a fee, pairing unnamed clients. This practice has been mostly supplanted by electronic systems, which are for the most part more efficient and more cost-effective. The significance of forex interbank level trading cannot be overstated. Many of the institutions trading at this level, the so-called "white hat" of the forex market have financial power rivaling that of many countries. In fact, some of the companies at this level have been accused manipulating economies in the third world, as is the case when UBS AG was alleged by the Securities and Exchange Board of India to have had a role in causing the 2004 Black Monday stock market crash On a side note, a common investment scams involves a fly-by-night group claiming to have access to extremely favorably forex rates normally found at forex interbank level currency trading. One should be careful of these operations that purport to let investors trade in the normally restricted forex interbank tier. To prevent being defrauded, one should always make sure the firm making the claim is an established bank, trading house, investment bank or long term players in the market. Always make sure to ask for the background of the company and other relevant information on paper, never verbally. If you have even the slightest doubt, do not invest with these firms.
| 