3. Advance Questions

Are Your Trades Submitted to the Interbank Market?

Lots of blood has been spilled in the battles over the subject, and all of this has been for nothing since there is no answer to this question either.

Why do traders care about this issue so much even though it doesn’t actually affect anything in reality? The point is that people, by their nature, don’t really like when somebody makes money on them, especially when that someone directly cooperates with them.

If a broker had openly told you about making money on your loss, you would have never opened an account with this brokerage company. It’s a different matter when brokers declare that they charge only their modest fees; if you have incurred loss, a trader just like you, but on the other side of a trade, will make that money.

That’s why regardless of the fact that a trader hasn’t yet learned to make money, it’s already important for them that trades – even the smallest ones – are submitted to the interbank market.

Is there any way to confirm a submission of a trade to the interbank market? Even if we’ve established contacts at the brokerage level and learned whether a particular broker submits trades to the interbank market, or rather, whether it submits all trades to its liquidity provider, it doesn’t mean that the liquidity provider itself passes them further. This provider often uses “bucket shop”-style methods, but on a much larger scale.

Plausible answer. Nowadays access to the interbank market is by no means something unique, and many brokers actually provide this service. So, it’s nice when a broker specifies which of its accounts have access to the interbank market and which don’t.

For example, if we look at the specifications of various brokers’ accounts, we can see a selected number of accounts that have access to the interbank market, and it does seem plausible.

Therefore, brokers might submit trades to the interbank market, but they don’t necessarily submit each and every one of them. From a business perspective, it makes much more sense to introduce a series of filters, so that the trades of potentially losing customers remain inside a brokerage company, and potentially winning ones are submitted to the interbank market. This is a hybrid model – you can read more about this and other models in this article.

At the same time, there are also limitations on the order lot size. For example, it would be naive to think that 0.01 lot order will be submitted to the interbank market, since it is cheaper for a broker to pay for it out of their own pocket.

Taking into account the facts mentioned above, the dilemma of choosing a broker submitting trades to the interbank market is absolutely unclear. When making your choice, it’s wiser to pay attention to the broker’s reputation, their lifetime and overall reviews.

For example, choosing a brokerage company with 10 years of experience, your risk is significantly lower compared to opening an account with a young broker that supposedly “submits” trades to the interbank market.

Conspiracy answer. The interbank market was established so that only banks could trade there. Forex trades are passed to as far as a liquidity provider and more likely meet their counter orders there or the provider acts as  a counterparty.

The only connection between Forex and the interbank market is the fact that in order to hedge its risks, a liquidity provider can open an aggregate position on every financial instrument in the interbank market.

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