Market Maker Forex Brokers

 

Market liquidity in the forex world, however, is never an issue, at least for major currency pairs. At a daily turnover rate in excess of $4 trillion, the forex market is the largest and most liquid market in the world.

Market makers may also move their currency quotes 10 to 15 pips away from other market rates. They are neither an agent nor an intermediary.

What exactly is a forex market maker broker?

There are market makers in the stock market as well as the FX market, and both help to provide liquidity. So how do these different types of market maker compare? Well, a key way in which the FX market differs from the stock market is that Forex transactions are less transparent.

They were not selling title to an actual asset where ownership issues were involved. Market liquidity in the forex world, however, is never an issue, at least for major currency pairs. No market maker in this arena would ever have to worry about building an inventory of unsold shares and then wait for the opportune time to unload them on the market.

In other words, there remains a basic conflict of interest for all market makers. Unscrupulous brokers can easily manipulate spreads to their benefit over time, leaving their clients to accept their behavior or move on. The market makers in the forex community of brokers, at least the vast majority of them, are legitimate and would never do anything like manipulating spreads to their immediate benefit.

They are more concerned about pleasing and retaining their clients. Competition is too fierce, and regulators provide much more oversight in this day and age.

Like it or not, however, ECNs, the other type of broker that passes orders straight through to their liquidity providers, waste little time in their marketing campaigns emphasizing that market makers trade against their clients in the back-office.

There are pros and cons for each broker set up, and these depend on what your individual needs happen to be. Each market maker competes for customer order flow by displaying buy and sell quotations that it will honor if acted upon in a timely manner.

Once an order is received, the market maker typically aggregates its net positions and immediately places an offsetting order in the market with its liquidity provider. This process takes place in mere seconds. In other words, a market maker does exactly what the term implies — it makes a market for the applicable currency pair, often without going to any trading floor or electronic exchange. Nearly all forex brokers operate in this fashion for retail forex trading.

Variable spreads and commissions, however, can be confusing, and this trading modality is designed more for commercial, institutional, and large balanced professional traders.

It is not for novice traders focused on small positions. There are two main types of market makers: Retail market makers are usually companies dedicated to offering retail forex trading services to individual traders.

ECN-type brokers also serve as counterparties to forex transactions, but they operate on a settlement, rather than pricing basis. Unlike fixed spreads, which are offered by some market makers, spreads of currency pairs vary on ECNs, depending on the pair's trading activities. Electronic networks make money by charging customers a fixed commission for each transaction.

Authentic ECNs do not play any role in making or setting prices, therefore, the risks of price manipulation are reduced for retail traders. Just like with market makers, there are also two main types of ECNs: The type of broker that you use can significantly impact your trading performance. If a broker does not execute your trades in a timely fashion at the price you want, what could have been a good trading opportunity can quickly turn into an unexpected loss; therefore, it is important that you carefully weigh the pros and cons of each broker before deciding which one to trade through.

How Market Makers Work Market makers "make" or set both the bid and the ask prices on their systems and display them publicly on their quote screens.

The trading platform usually comes with free charting software and news feeds. Some of them have more user-friendly trading platforms. Currency price movements can be less volatile compared to currency prices quoted on ECNs, although this can be a disadvantage to scalpers. Market makers can present a clear conflict of interest in order execution because they may trade against you. It is possible for market makers to manipulate currency prices to run their customers' stops or not let customers' trades reach profit objectives.

Market makers may also move their currency quotes 10 to 15 pips away from other market rates. A huge amount of slippage can occur when news is released. Market makers' quote display and order placing systems may also "freeze" during times of high market volatility. Many market makers frown on scalping practices and have a tendency to put scalpers on "manual execution," which means their orders may not get filled at the prices they want. It is possible to trade on prices that have very little or no spread at certain times.

Genuine ECN brokers will not trade against you, as they will pass on your orders to a bank or another customer on the opposite side of the transaction. Prices may be more volatile, which will be better for scalping purposes.

Since you are able to offer a price between the bid and ask, you can take on the role as a market maker to other traders on the ECN.