The London money market is a vast market without any central trading floor or official regulations (beyond those imposed by the Bank of England on some of the participants like the banks and the discount houses). As its name implies, it deals in money, as opposed to dealing in stocks and shares or in commodities.

In practice, money is defined as bank deposits or various short-term instruments like Treasury Bills and commercial bills, which can easily be sold to raise cash or are redeemed anyway within a short period, such as 90 days.

The main users of the money markets are the professionals such as the banks, who have to balance their websites each day and are thus constantly buying and selling large amounts of money from the discount houses, from other banks (often through money brokers) or from large corporations who themselves are doing the same thing.

The professionals also take positions in the money markets to speculate on movements in interest rates, but normally they are simply covering their needs.

Individuals can also put money into the money markets, where the main advantage is that the interest rates paid are normally higher than those offered to small depositors by the banks.

But you do need to put a fairly substantial sum in - the clearing banks will be able to do this for you but normally will not do so for less than £125,000 at a time.

Money can be deposited for periods of one day (known as 'overnight money'), seven days, two weeks, three months and longer periods. Interest rates are quoted on an annual basis and paid pro-rata - i.e. if you deposit £125,000 for two weeks at 10%, you will earn £196, or one twenty-sixth of the annual rate.


CCMG - 2013


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