When you look into the foreign exchange rate market you may have heard of the interbank market.  This market is very important when you look at trading forex.  It is important that you know what the interbank market is and how this affects your trading.  You should also consider who has access to the interbank market as this can help you avoid foreign exchange rate scams.

What is the Interbank Market

The interbank market is the foreign exchange rate market that the banks use.  Around 50% of the trades on the forex market come from the banks and their use of the interbank market.  This market is only accessible by the banks and not retail brokers or traders.

The Interbank and Retail Brokers

The interbank market is something that retail brokers do not have access to.  If you find a broker that offers access to the interbank then they are lying and could be a scam.  The only access that broker have to the interbank is through a bank.  Most brokers work with a bank to offer you the currency pairs and ability to trade.  You will trade with the retail broker and they will trade with the bank.  There are generally a couple of banks that they work with to ensure that they are getting the best prices.

There is a lot of competition between the banks that have access to the interbank.  This is actually very good for the retail trader because of the rates you could get.  The greater the competitions between the banks the more competitive their prices are going to be.  This means that the brokers are going to get better rates and they can offer you tighter spreads and better prices.

Choosing Your Broker

When you look at the different brokers you have to consider their capitalisation.  When a broker is better capitalised the banks are more willing to trust them and offer them competitive rates.  When you use a bigger broker you should also consider the number of banks they could be working with.  The bigger brokers are able to have a relationship with a number of different banks.  This allows them to get the best rates at any time.

There are some brokers who do not have a direct link to the banks.  These brokers are generally working with market maker who is working with the banks.  Choosing these brokers could cause you to not get the best rates on the market.

Understanding the Interbank Market

Most retail traders do not have to actually understand the working of the interbank market.  What you do need to know is how the market affects you.  The primary way that the market affects you is through the rates that your broker can offer.  You should also keep in mind the use of the interbank market in forex scams.

There are a lot of scam brokers and other scams that state that they either have access to the interbank market or information regarding the market.  The access is limited to the banks and the information is something that you can actually get yourself.