Market Maker Definition. A Market Maker 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. They are counterparties to the transaction, but 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.
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