Sunday, January 8, 2012

credit-based forex pip spread

http://www.investopedia.com/articles/forex/06/interbank.asp#ixzz1ieCkYs8D says something like

In The interbank market (EBS and Reuters), banks trade based solely on the credit relationships they have established with one another. All can see the narrowest spread but each bank must have a specific credit relationship with another bank to trade at the best spread. The bigger the banks, the more credit relationships they can have and the better pricing they will get. Similarly, The larger a retail forex broker is in terms of capital, the better pricing it can get from the interbank market. If a client or even a bank is small, it gets wider spread.

I believe nothing else counts when it comes to the bid/ask spread you receive -- only your credit counts. So how does a dealer size up your credit? I feel it's largely due to your cash pile.

Why is an exchange conferred higher credit than all the banks and even the national government? Because an exchange has the most strict credit control and credit risk monitoring in place. No exchange has ever failed to deliver on its obligations.

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New York (Time Square), NY, United States
http://www.linkedin.com/in/tanbin