Market making
Since most Forex deals are made by (individual and organizational) traders, in conjunction with market makers, it's important to understand the role of the market maker in the Forex industry.
FAQ about Market making
What is a market maker?
A market maker is the counterpart to the client. The market maker does not operate as in intermediary or trustee. A Market Maker performs the hedging of its clients' positions according to its policy, which includes offsetting various clients' positions, and hedging via liquidity providers (banks) and its equity capital, at its discretion.
Who are the market makers in the Forex industry?
Banks, for example, or trading platforms, who buy and sell financial instruments "make the market". That is contrary to intermediaries, which represent clients, basing their income on commission.
Do market makers go against a client's position?
By definition, a market maker is the counterpart to all its clients' positions, and always offer a two-sided quote. Therefore, there is nothing personal between the market maker and the customer. Generally, market makers regard all of the positions of their clients as a whole. They offset between clients' opposite positions, and hedge their net exposure according to their risk management policies and guidelines of regulatory authorities.
Can a market maker influence market prices against a client's position?
Definitely not, because the Forex market is the nearest thing to a "perfect market" in which no single participant is powerful enough to push prices in a specific direction. This is the biggest market in the world today, with daily volumes reaching 3 trillion dollars. No market maker is in a position to effectively manipulate the market.
How do market makers manage their exposure?
The way most market makers hedge their exposure is to hedge in bulk. They aggregate all client positions and pass some, or all, of their net risk to their liquidity providers.
FAQ about Market making
What is a market maker?
A market maker is the counterpart to the client. The market maker does not operate as in intermediary or trustee. A Market Maker performs the hedging of its clients' positions according to its policy, which includes offsetting various clients' positions, and hedging via liquidity providers (banks) and its equity capital, at its discretion.
Who are the market makers in the Forex industry?
Banks, for example, or trading platforms, who buy and sell financial instruments "make the market". That is contrary to intermediaries, which represent clients, basing their income on commission.
Do market makers go against a client's position?
By definition, a market maker is the counterpart to all its clients' positions, and always offer a two-sided quote. Therefore, there is nothing personal between the market maker and the customer. Generally, market makers regard all of the positions of their clients as a whole. They offset between clients' opposite positions, and hedge their net exposure according to their risk management policies and guidelines of regulatory authorities.
Can a market maker influence market prices against a client's position?
Definitely not, because the Forex market is the nearest thing to a "perfect market" in which no single participant is powerful enough to push prices in a specific direction. This is the biggest market in the world today, with daily volumes reaching 3 trillion dollars. No market maker is in a position to effectively manipulate the market.
How do market makers manage their exposure?
The way most market makers hedge their exposure is to hedge in bulk. They aggregate all client positions and pass some, or all, of their net risk to their liquidity providers.
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