What is IBOR? Explore The Interbank Offered Rate (IBOR Rate)

Discover what IBOR (Interbank Offered Rate) means, how the IBOR rate works, and why it’s crucial for traders and financial markets.

The trading market is vast, with numerous concepts and terminologies. IBOR is one such important financial terminology that deals with interest rates.

In Beirman Capital’s trading terminologies series, we will discuss the IBOR meaning, its utility for traders with pros and cons. It will help you in planning your currency trades. So let’s get started.

What is the IBOR Rate?

IBOR means Interbank Offered Rate. It’s a benchmark that represents the average of rates that global banks offer each other for loans.

IBOR has been used in the financial market for quite a long time, impacting the trading activities. The over-the-counter or derivative market gets affected by the change in IBOR Rate.

IBOR is known by different names based on the country and regulations. Let’s have a look at Major IBORs globally:

LIBOR:

London Interbank Offered Rate (LIBOR) is the most popular IBOR benchmark that remains in the news for financial crashes and scams. Libor and Libor rates were widely used as global reference points for short-term interest rates. It was applicable to multiple currencies including USD, GBP, EUR, JPY, and CHF.

However, due to manipulations in the Libor rate, this benchmark ended on June 30, 2023. The current Libor rate is no longer published, and the system has been replaced with a new benchmark. The Libor rate today holds only historical significance. You can refer to the table below for Libor replacement rates.

Understanding the Libor value and Libor rate history is still important for analyzing legacy contracts and past financial data. If you’re wondering what is Libor, or searching for Libor login access to historical datasets, financial institutions and regulators continue to provide archived resources for reference.

Currency	Old Rate	New Rate
USD	USD LIBOR	SOFR
EUR	EURIBOR	€STR
GBP	GBP LIBOR	SONIA
JPY	JPY LIBOR	TONA
CHF	CHF LIBOR	SARON

EURIBOR:

The Euro interbank offered rate by the European Money Markets Institute (EMMI) is a benchmark for the EURO, and it is still used in the Eurozone. Euribor rates continue to serve as key reference points for interest rates on euro-denominated loans and financial instruments across European markets.

TIBOR:

Tokyo Interbank Offered Rate by JBATA is a benchmark for Japanese Yen.

HIBOR:

Hong Kong Interbank Offered Rate by HKAB is a benchmark for HKD.

CHIBOR:

China Interbank Offered Rate is a benchmark for CNY.

Why is IBOR important for Traders?

IBOR has a direct relationship to interest rates, and interest rates directly impact currencies. So, for traders, IBOR really helps. Here is how:

Currency Pairs Price Fluctuations: A change in IBOR leads to a significant change in the related currency market. Thus, traders should watch old and new IBOR rates to predict the future market.

Future and Swap Market: The interest rate differentials directly impact swaps, futures, and options. Traders dealing in derivative markets must keep an eye on them.

Carry Trading: Traders using the carry trading strategy can get valuable insights by watching IBOR. The entire carry trading strategy is based on the interest rate difference, so the IBOR rates really help in predicting the market.

Track a Volatility: Changes in short-term rates directly affect the market volatility. Monitoring IBOR rates can help traders in tracking the volatility of the asset.

Pros of IBOR

Global Benchmark: As we have studied above, different countries have their IBOR rates. Understanding IBOR will help you in dealing with global currencies and predicting their rise and fall.

Comprehensive Analysis: IBOR helps traders in analyzing different rates for different periods and regions. Both short-term and long-term traders can watch these rates to analyze the overall market conditions.

Cross-Currency Comparison: IBOR is widely used for currencies such as USD, EUR, JPY, CHF, and many others. Traders can compare these currencies, analyze their strengths and weaknesses against each other.

Versatility: IBOR can assist you in framing diverse short-term and long-term trading strategies. Traders dealing in options, futures, and swaps can develop and optimize their strategy by analyzing these rates

Cons of IBOR

Manipulations: Manipulations and scams are quite common in the market with IBOR rates. The LIBOR rates were in the news in 2008, which led to a financial crisis, manipulations, and billions of fines.

Complex: IBOR is a rare concept; not many traders have an understanding of this system. Beginners and even experienced traders may find the interest rate concepts complex.

Transition in Policies: IBOR rates are quite old; in most countries, new rates are being introduced. Thus, it may not be that effective in predicting the current market conditions.

Final Words

IBOR is a key concept that not only helps you in trading but it will helps you to understand the working of the entire financial market. Understanding the IBOR system may take time and effort. But it will help you stand out from the crowd and level up your trading journey.

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FAQ

What is the meaning of IBOR?

IBOR means Interbank Offered Rate. It’s a benchmark that represents the average of rates that global banks offer each other for loans.

Are IBOR and LIBOR the same thing?

No, IBOR is Interbank Offered Rate; LIBOR is an IBOR used in the European region. It stands for London Interbank Offered Rate

What is the difference between SOFR and IBOR?

Interbank Offered Rate and Secured Overnight Financing Rate are interest rate benchmarks. IBOR is old, while SOFR is new, enhanced, and reliable.

What is replacing IBOR?

New rates such as SOFR, SARON, SONIA, TONA, etc, are replacing IBOR in many countries.