Before ordinary individuals started trading, it was already done by large banks and institutions for so many years now. They've been trading with each other and this has been the trends in the past few decades. At first, they were the only ones to use trading.
What is Interbank?
This is called interbank forex trading. This kind of trading also includes large corporations, retail investors and small trading parties.
The banks deal either for themselves or for the investment of others.
They are aiming to get high profits out of it. Because they invest a lot, they also earn a lot in return. This is why they are the individual investors' biggest competition.
But you can never choose who you can play with. It just depends on your strategies. In interbank forex trading, there is a tendency of tight competition because you are struggling to win together with your competitors.
Individual traders can also get the price quotes but their access to the pricing system is strictly prohibited. In this kind of trading, the brokers can offset their trading positions.
In interbank forex trading, you will be able to know if the given prices are right or if the brokers' fees are reasonable for traders like you.
Interbank forex trading uses self-regulation systems meaning that the currency prices depend on a certain party's interest.
Hence, the prices are determined by different factors. First is the current rate of the market.
They do this in order to maintain reliability. Second is the volume available at the current level of prices.
How do Banks & Forex Firms Make Money Dealing FX? 💱
Third, they are determined from the inventory position of each participating bank.
Since interbank forex trading covers a large amount of investors with different needs and desires, this creates a harmonious relationship among them.
This is so true to the relationship of the individual investors and their brokers. They work together with harmony.
And as a result, they gain more positive outcome. The more well-capitalized these institutions are, the more they could have credit relationships among traders.