Interbank Currency Trading
What is meant by interbank currency trading?
If you go through forex discussion forums you might come across people using the term interbank to include any person who is occupied in forex trading including sellers and buyers. You migh also come across this term on a forex brokers website like Dukascopy. Naturally you might think that interbank currency trading is another term used for retail currency trading which is not true. Let’s see how interbank currency trading differs from retail forex trading.
In the beginning there were only banks and large financial institutions in forex market. These major financial institutions were exchanging different international currencies between each other as part of trading. This was done through dealing desk from which each would be in touch with the other banks around the globe. These banks would quote each other the rates at which they would be prepared to trade one currency for another currency and would strike the deal as soon they agree on the prices. These trades were happening between major financial institutions like insurance firms, mutual fund companies and mainly between banks. Hence these currency exchanges were called interbank currency trading.
Today the forex market is not entirely controlled by Banks though they are still the major players in the market. Speculative trading became possible in forex market during the 1970’s when exchange rates of most of the key currencies were almost fixed. During those days the trading was done by telephone almost exclusively. The major financial institutions like banks started utilizing the service of full time currency traders to raise their profits by speculating on the rise and fall of forex currency rates. During the late 1990s internet started gaining high popularity and today internet is the main medium of trading. These days just about anyone who got a personal computer can become a forex trader since almost all the developed and developing countries provide a high speed internet connection. But, a retail trader like you and me do not have the capability to set up our own dealing desk and communicate directly with the banks or currency traders around the world. This where forex brokers come in, since we need an intermediary to get involved in trading with others.
How Forex Brokers Work
Forex brokers let the small retail traders like us to open accounts with them as clients and then negotiate with the interbank forex trading market on our behalf. These brokers normally have an agreement with one of the banks to use their dealing desk to get involved in forex market. This gives the forex brokers the capability to accept smaller fund balances and hence many will let you open mini forex accounts. However this can result higher costs like a higher spread or you may come across bucket shops forex brokers who will manipulate the prices make sure that they are getting some profits on top of the bank’s spread involved. Large brokers who are directly part of the forex market usually have their own dealing desk. However these brokers are less likely to offer mini forex accounts and you mostly will be trading standard lots, which means you should have hefty sum in your account.
Now that you know about interbank currency trading why not take some action and make real money. You can either go with a manual trading system like 10 minute forex wealth builder or get an automated forex software like FAP turbo to make money with currency trading.
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