Market markers who usually refer to themselves in the Foreign Exchange Market as retail brokers, act by both quoting a bid and then later an ask price when making currency pairings. These Forex brokers are responsible for selling to their clients when their aim is to buy and buy from them when they intend to sell. It is important to note that these retail Forex brokers are not institutional and thus do not take care of the currency exchange needs of the larger financial corporations. Their main task is to provide a trading platform for potential traders who often trade from the comfort of their homes, or those who trade in amounts that are less than a million dollars in a day.
In the formative years in the Foreign Exchange Market, the only players that could trade here were large global banks, wealth individuals with the ability to trade in large amounts of currency and commingled funds. The transactions that took place during this epoch mainly consisted of $1 million positions with nothing less than this (as seen in the new phenomenon of retail brokerage). The main factor that led to the growth of this particular type of market was the need by Forex brokers to provide access to the market for their clients with terms that were reasonable and those that were also convenient.
Market Marker Forex Brokers Demystified
The term ‘Market Marker’ refers to a broker-dealer firm that in most occasions is ready to accept the risks that come with holding various forex positions simultaneously in order to assist trading in a particular currency trading. The Forex brokers in essence can now make their own market by creating a system where orders are placed in their own market. In this market that they create, they are now able manipulate the bid and ask to their own financial advantage. This is simply to say that the Forex brokers here can trade against their own clients if the particular client puts them at risk. This is known as a ‘bid play’, which is not illegal meaning traders cannot sue the Forex brokers if they so happen to engage in this practice.
In this system of currency exchange a market marker competes for the chance to have a customer’s order flow. This is done by them displaying their buy and sell quotations that they intend to trade in and honor. In the event that an order is received, what follows is the market marker aggregating their positions and then offsetting the order with various liquidity providers at their disposal. Being true to their name, the market markers create a market for the currency pairing that is applicable in the situations that they are presented with without using any form of electronic exchange.
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