Question

What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?

Answer 1

The difference between the retail or client market and the wholesale market or interbank market for foreign exchange is explained below :-

Interbank Markets- it is where the biggest banks exchange currencies with each other. Even though it has a very few members, the trades are too high in volumes. Each bank has a currency desk called the dealing desk. They are continuously in contact with each other and make sure that there is uniformity in the exchange rates around the world. Most of the trades are very high in value such as $1 million of the currency traded and hence, they have a monopoly over the market. Banks trade for themselves and their clients. Their clients include Governments, sovereign wealth funds, high net worth individuals and hedge funds. Examples of the real life biggest players in these markets are :- J.P. Morgan Chase, UBS and XTS Markets.

Retail Markets- Retail Markets is the market dominated by a much smaller share of market participants where individuals like traders speculate on the exchange rate between different currencies. For the retail trades, most of them will be on CFTC or SEC controlled website. Usually, retail markets or client markets are the dealer markets which are over the counter markets(not traded on a recognised exchange). Usually a retail foreign exchange dealer acts as the counter party to this kind of over the counter transaction. REFD may be individuals or organizations. The difference between the bid and ask spreads make them profits. The developments in technology softwares, foreign exchange platforms has lead to a development in this area of forex market.

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