Interbank Market, Definition

There is no physical or centralized exchange in the forex market as seen in the stocks and futures markets. Multiple market makers are used (unlike the specialist system used by the NYSE). The forex market operates in a similar way to Nasdaq - and is also referred to as an over-the-counter (OTC) market. The backbone of the forex market consists of a global network of dealers - largely the major commercial banks of the world, who communicate through networks and by telephone.

The Interbank Market trades the greatest volume in the forex market. The Interbank Market describes the marketplace that exists between the largest banks, who trade with eachother directly, via interbank brokers or through electronic brokering systems such as Electronic Brokering Services (EBS) or Reuters Dealing 3000 Spot Matching. The rates can be seen by all banks - however each bank must have an established credit relationship with another in order to trade the rates being offered. Other participants in the forex market - such as online forex market makers - must trade through commercial banks.

The internet and online trading has allowed the retail trader more efficient and lower cost access to the forex market - through online fx market makers.