The past two years have not been the best of times for British banks. There was of course the sub-prime mortgage crisis followed by a deep recession that the economy only recently crept out of. Therefore, it was no surprise when the Bank of England, Britain’s central bank, announced that lending by British banks has been trending downward over the past year.
The decline was sharpest in the business sector where loans from banks in London were off by more than eight per cent. This includes all of the major lenders in the country who have cut both business and mortgage lending over the past year. But banks in London still need a way to make money during difficult times and one of the most reliable sources of income of late has been the Forex trading system.
What is it? Forex is a portmanteau word that combines the words foreign and exchange. As you may know, the currency markets are the foundation of the world economy, see currency trading news . Every day more than two billion pounds are traded in the foreign currency market. But the banks of London don’t do much trading or speculating for one simple reason: they don’t have to.
You see, the banks actually are the currency market. It’s their money. So, they make pounds whether they trade, speculate or just sit back and relax. In fact, the banks make money on each and every trade from what are called pip spreads, which is the difference between the bid and the ask price.
And since they are always in a hedged position, because again it’s their money, they always make out on a trade. In recent years as the currency market has grown, the banks of London have made major investments in Forex trading systems, and they have done quite well for themselves, even in a troubled economy.