Market Makers Forex Brokers
Market Makers are brokers trading Forex, Commodities, Stocks and Indices by creating their own market. They are also called Dealing Desk Brokers (DD) or Agents.
What is a Market Maker Broker?
A Market Maker is a broker that creates a market within a market. A Market Maker takes always the opposite position than the position of a client. This means that when a client is opening a trading position instantly the broker becomes the counter party.
◙ Client goes Long ↔ The Market Maker goes Short
◙ Client goes Short ↔ The Market Maker goes Long
Two Types of Market Maker Brokers
There are two types of Market Makers:
(1) Retail Market Makers Brokers (Financial companies dedicated to serve individual traders.)
(2) Institutional Market Makers (banks or large corporations offering bid/ask prices to their clients)
How a Market Maker Makes Profits
Market makers tend to stand in the middle between two opposite client orders and make money by charging a spread between bid and ask price.
Client-A: Buys 100,000 Euro against USD at 1.2000
Client-B: Sells 100,000 Euro against USD at 1.2004
That’s it, the broker just made 4 pips / 100,000 USD, without any risk. Of course sometimes a large client order may not get an equal-sized opposite position. In this case the Market Maker is vulnerable to what is called as the Market Risk.
Cost of Forex Trading with a Market Maker Broker
Market Makers charge no trading commissions, they charge only spreads.
(1) High spreads between ask and bid price.
These are the minimum spreads offered by Market Makers nowadays:
EURUSD spread at 2 pips
GBPUSD spread at 3 pips
USDJPY spread at 3 pips
It is obvious that the above minimum spreads are considerably wider than the minimum spreads offered by ECN and STP Forex Brokers.
Forex means FOReign EXchange and it is a global market where world currencies can be traded against its other. Forex Market is huge with daily volumes of about 5 trillion dollars. The Forex Currencies fluctuate according to actual monetary flows but additionally according to anticipations about global economic conditions.
Forex Market Participants
Forex market incorporates many different types of participants, the most important are:
1. Central and Commercial Banks
2. International Trade Companies
3. Forex Brokers (ECN, STP and Dealing-Desk brokers)
4. Large, Medium and Small Institutional Investors (i.e. Investment Companies, Hedge Funds etc)
5. Common Retail Traders | 6. World Travelers
Where is Forex Situated?
Forex works as a non-centralized network. It works almost the same way as the internet does (World Wide Web). That means that every order from any trader is executed in a global network of demand and supply, called the ECN network (Electronic Network of Banks). That fact adds reliability and transparency into Forex trading transactions but most importantly it adds liquidity and that means low cost of transactions.
What are the Advantages of Trading Forex?
Forex Trading offers some unique advantages:
(1) Enormous liquidity which is transformed into minimal transaction cost (cost is measured basically by the spread which is the difference between buyers and sellers)
(2) Huge Leverage) Leverage means trading with more funds than you hold in your account, a common leverage in Forex Trading is 100:1)
(3) Wide Choice of everything (Hundreds of brokers to choose, hundreds of strategies, manual and automated systems, signal providers, you name it!)
(4) Trading 24 hours per day (24/5) and access via desktop and mobile devices
(5) Fantastic Forex Promotions are available at any time (50-100% welcome bonus or even No-Deposit bonus up to $100)
There are 3 trading sessions: 1) New York Trading Session | 2) London Trading Session | 3) Tokyo Trading Session
Forex Market Trading Hours
The Forex market is an OTC (Over-The-Counter) Interbank market open for 24 hours a day. The Forex market opens at 21:00 GMT on Sunday and closes on Friday at 21:00 GMT.