What are Interbank Rates?

Interbank Rates Definition. Interbank Rates in the Forex world are the foreign exchange rates at which large international banks buy and sell currency. The Interbank Market is the financial system and trading of currencies among banks and financial institutions, excluding retail investors and smaller trading parties. Most interbank trading takes place from the banks’ own accounts, although some banks perform interbank trading on behalf of their large customers. Unlike the Stock Market, the Forex market does not have a physical central exchange. Banks can generally deal with one another directly, or through electronic trading platforms. The Electronic Brokering Services (EBS) and Reuters Dealing 3000 Matching are the two competitors in the electronic brokering platform business and together connect over 1000 banks. The interbank market for currencies supports commercial turnover of currency investments as well as a large amount of speculative, short-term currency trading. According to data compiled by the Bank for International Settlements, approximately 50% of all forex transactions are settled by using Interbank quotes. Interbank rates can also apply to the interest rates that major banks charge each other for borrowing liquid funds from amongst each other. A typical rate setting mechanism for Euro-Dollars is LIBOR, or the London Inter-Bank Offer Rate.

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Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.