The Interbank Market is a market where different types of currency are traded between large privately held banks 24 hours per day and 5 days per week. The interbank market is what people are referring to when they are talking about the currency market. It is what institutional traders such as banks, sovereign nations, some large hedge funds, and generally large very well-capitalized institutions trade on.
To the retail trader the forex market, FX market, or foreign exchange market is what they will be trading on which has a slight distinction from the interbank market. Generally, a retail trader will be trading on a retail FX broker platform that has access to trade clearing with an interbank trading partner. The FX broker acts as a middleman for the retail trader to the interbank market in this sense.
Trading in the Interbank Market
When trading the FX markets it’s essential to understand that the market is not in any specific physical location. This is different from an exchange like the London Stock Exchange or the New York Stock Exchange for example. The foreign exchange market is known as an Over the Counter market which is commonly referred to as an OTC market.
The rooting of the FX market is also referred to as the interbank market. This means that the entire FX market is run electronically within a network of banks and financial institutions continuously over a 24-hour period. What this means is that you don’t have to be at any central location to place a trade. You can trade at virtually any time of the day or night and from any location in the world. This freedom of access to the FX market allows traders to trade from anywhere in the world at any time with a laptop computer and a stable internet connection.
Can you see how a market that operates 24 hours 5 days a week with huge liquidity would be appealing to an enormous number of people all over the world? It also has one of the lowest entry barriers over most other types of markets because you can open a live trading account with as little as $50.
In this interbank market, the most actively traded currency is the US dollar, the Euro comes in second, and the Japanese Yen comes in third.