What is a Market Maker?

Market Maker Definition. What is a Market Maker? This is a dealer who regularly quotes both bid and ask prices and is prepared to make a two-sided market for any financial instrument, commodity or currency. Most forex trading firms and many banks are Market Makers. Counterparties to the transaction, they do not necessarily represent clients specifically or act as intermediaries. They trade in bulk and hedge their risk by aggregating internal trade positions, using their own capital to hold inventory, or access the market when internal netting requires it. They do not charge commissions. Their revenue stream is based solely on the spread bid on currency pairs. Forex trading is comprised primarily of virtual over-the-counter electronic dealing, and forex software trading platforms have enabled non-bank participants to act as market makers and manage the order taking and fulfillment process internally. Liquidity management is the term used for automating this entire process to prevent human intervention and manipulation, but to date, advanced software programs in this area have not been widely adopted in the industry.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.