Wednesday, April 29, 2015

INTERBANK

You will often hear the term INTERBANK discussed in FX terminology. This originally, as the name implies, was simply banks and large institutions exchanging information about the current rate at which their clients or themselves were prepared to buy or sell a currency.
‘INTER’ meaning between and ‘Bank’ meaning any deposit taking institution. The market has moved on to such a degree that now the term interbank means anybody who is prepared to buy or sell a currency.
It could be just two individuals changing currencies or your local travel agent offering to exchange Euros for US Dollars. You will however find that most of the brokers and banks use centralized feeds to insure reliability of quote.
The quotes for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 or so large institutions. This ensures that if they place an order on your behalf, the institutions they have placed the order with will be capable of fulfilling the order.
Now although we have spoken about orders being fulfilled, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words the person or institution that bought or sold the currency has no intention of actually taking delivery of the currency. Instead they were solely speculating on the movement of that particular currency.
Source: Bank For International Settlements http://www.bis.org
Extract From The Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity.






















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