Forex Market Maker - Know If They're Useful For You Or Not

There are many Forex brokerage companies that might confuse you when you are starting out as a Forex trader. All of these Forex brokerage companies are categorized into two main groups; the ECN Forex broker and the market maker Forex brokers. You can choose one of them depending on your needs but in this article we will focus on the latter.

What is it?

Market Maker Forex brokers are allowed to create and also maintain a market in a particular financial instrument. The market makers are allowed to quote, buy and also sell currencies . The profits of the broker are made on the slight differences between the offer and the bid spreads. They are compensated because they maintain liquidity and thus creating efficiency in that particular financial instrument.

Why are forex market makers ?

When you are placing an order, the transaction that you see is not as simple as it looks. Your position might get executed within a matter of seconds but behind everything, the market maker does all the work of matching the seller and the buyer, and vice versa. Without the broker , it would be difficult for a seller or a buyer to get the same exact shares. Forex market makers buy huge quantity of shares from sellers even in situations where they dont have a buyer so as to quicken the transaction if you happen to place an order with them. By doing so, market maker Forex market makers risk a large amount of money ready to be lost if the prices fall while they still hold their positions .

They avoid this from happening by maintaining a spread which can be a difference of $0.05 between the ask price and the bid. The extra liquidity provided by these brokers allows a better trading experience . When choosing a Forex broker , you should first be certain that they are regulated . There are a lot of Forex brokers but you can eliminate scams by doing a little internet research . Note that, market makers do not take fees for their services since they generate their profits from the difference between the ask price and the bid.

Advantages of Market Makers

When an trader places an order to buy a currency pair which nobody wants to sell, market makers hedge that position to that trader from their own portfolio.

The prices of this type of broker are less volatile and smoother than ECN

You can open an with only few hundred dollars because most of Forex market makers offer a micro or mini Forex trading account.

Disadvantages of Market Makers

They will most probably trade against you

There are some that will not allow you to make a lot of trades within a short period of time in a day.

If they cannot match the display price on the ECN, you will not get it.


In conclusion:

You should be taking your time when you are chosing a Forex broker because they affect your trading . Spreads are very important because they can determine whether you will be a successful or loser trader . A market maker may possesses a bit higher spread than STP brokers, but they maintain the exact same spread at all times. At a STP broker, you might have higher spread on news releases or such event, thus choose wisely.