What Is Interbank Forex

The forex market is a decentralized market with no central market where transactions are recorded.
The interbank forex market relies on market makers who record their own transactions and the information is kept private. A market maker is a broker-dealer firm that facilitates the buying and selling of securities or currency. The primary market makers in forex are the world's largest banks.

The interbank market is the system of trading currencies among the world's largest banks and while most of the transactions are done between the banks themselves some banks do handle forex transactions on behalf of large customers. It has been estimated that 50% of all interbank forex transactions are between the banks themselves. The interbank forex is the source of price quotes that enable investors and brokers to make informed decisions.

According to the Wall Street Journal 73% of all interbank forex transactions are done through 10 major banks. Most of these banks maintain a separate group known as the Foreign Exchange Sales and Trading Department. Each Foreign Exchange department contains a sales and trading desk. The sales desk is responsible for taking orders from clients, getting market quotes and relaying that information to the client. The Trading Desk is responsible for making decisions based on market information and many traders specialize in certain currency pairs. Usually banks will have traders that are responsible for all trading in specific currency pairs, the EURO/USD for example.

Banks determine currency prices by a variety of factors; how much of a particular currency is available at the current price, the current market rate, inventory, and opinions on where the price of the currency is headed. Unfortunately banks are reluctant to share all this information with brokers and investors.


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