The term “inter-bank prices” are often discussed in FX terminology. As implied by the name, this refers to the exchange of information, or in this case live prices between banks and large institutions. These prices reflect the current rate at which they or their clients are prepared to buy or sell a currency. Inter means between, and Bank means deposit taking institutions (these are normally made up of banks, large institution, brokers or even governments).
Today, with the introduction of the internet, the market has evolved to such a degree that 4XP is able to offer inter-bank prices to their clients with far less restrictions and much greater flexibility then can be found at the banks. However, in order to guarantee stability of the live prices you see on the 4XP trading platforms (Metatrader4 and 4XP Professional), we use a number of centralized feed sources to ensure the reliability of our quotes. The quotes for Bid and Ask prices are all generated from reliable sources and ensure that they represent the true value of the market at that given second. The spread is the difference between the Bid and Ask prices, the greater the difference the greater the spread and the harder it is for the trader to make money on the trade. This can best be shown by an illustration. Let's talk about our business traveler once again, however this time in more realistic terms. We discussed a businessman that was looking to travel from New York to Frankfurt. He had $5,000 cash on him, and he wanted to transfer his US Dollars to the local Euro. The inter-bank market was, as discussed earlier 1.3428 to 1.3431. He approached the local money changer and he was told that he could buy his Euro's at a rate of 1.3800, having very little choice (since all the non-commission money changes were offering the same rate) he sold his 5,000 US Dollars and received (5000/1.3800=) 3,623.19 Euro's. As it happened, there was at that same time a lady that had just arrived to NY from Paris and wished to purchase 5,000 US Dollars as spending money for her holiday vacation. The same money changer told her that she could sell her Euro's at the exchange rate of 1.3000 once again the lady purchased the US Dollars and sold her Euro's since there was very little choice in the manner. She received her 5,000 US Dollars and paid (5,000/1.3000=) 3,846.15 Euro.
As we can see, the money changer made a profit of (3,846.15-3,623.19=) 222.96 Euros on the two transactions. The spread taken by the money changer in this case was 1.3000 to 1.3800 or 0.0800 which is known as either 8 figures (each figure is worth 100 pips or points) or 800 pips or points. In percentage terms, the spread represents (0.08/1.3430*100=) 5.96%. This is a realistic example of the spread one would expect to receive from money changers around the world.
The question is why the businessman or the lady on holiday would agree to such a rate. The answer is quite simple - there isn’t too much of a choice. The inter-bank rate is available to just about everyone today, however, only when the trades are non-delivery, which means that actual funds are not actually exchanged.
In order to receive inter-bank rates for delivery or exchangeable funds like the businessman above, very large amounts normally have to be traded on a regular basis with a bank or other major financial institution.
On a 6% spread, it would be virtually impossible to profit out of the foreign exchange market (unless of course you were the money changer).
The spreads offered by brokers make that scenario entirely different; let's examine the inter-bank spread in the examples given above:
As we can see, the money changer made a profit of (3,846.15-3,623.19=) 222.96 Euros on the two transactions. The spread taken by the money changer in this case was 1.3000 to 1.3800 or 0.0800 which is known as either 8 figures (each figure is worth 100 pips or points) or 800 pips or points. In percentage terms, the spread represents (0.08/1.3430*100=) 5.96%. This is a realistic example of the spread one would expect to receive from money changers around the world.
The question is why the businessman or the lady on holiday would agree to such a rate. The answer is quite simple - there isn’t too much of a choice. The inter-bank rate is available to just about everyone today, however, only when the trades are non-delivery, which means that actual funds are not actually exchanged.
In order to receive inter-bank rates for delivery or exchangeable funds like the businessman above, very large amounts normally have to be traded on a regular basis with a bank or other major financial institution.
On a 6% spread, it would be virtually impossible to profit out of the foreign exchange market (unless of course you were the money changer).
The spreads offered by brokers make that scenario entirely different; let's examine the inter-bank spread in the examples given above:
| Instrument | Bid | Ask |
| EUR/USD | 1.3428 | 1.3431 |
As seen in the table above, the spread being offered by the broker on EUR/USD is 0.0003 or 3 pips or points. At 4XP, our standard spread on EUR/USD is 3 pips fixed, which is considered to be a very aggressive rate. In percentage terms, we can see that a 3 pip spread on EUR/USD is equivalent to (0.0003/1.3430*100=) 0.0223%. That’s a significant difference between the money changer rate showed above, and this is what makes trading in Forex so attractive - the spreads offered by 4XP are so small and with zero commissions added that making money in FX is a real possibility.
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