What is a Market Maker? (Lexical)A Market Maker is the counterparty to the client. The Market Maker does not operate as an intermediary or trustee. A Market Maker performs the hedging of its clients' positions according to its policy, which includes offsetting various clients' positions, 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 (such as Easy-Forex™), that buy and sell financial instruments at the market are Market Makers. Market Makers are not intermediaries, which represent clients and earn their income through commissions charged on transactions.
Do Market Makers go against a client's position? By definition, a Market Maker is the counterparty to all its clients' positions, and always offers a two-sided quote (two rates: BUY and SELL). Therefore, the Market Maker is not acting as an agent for its customer. Market Makers manage their total positions opposite their clients. They hedge their net exposure according to regulatory guidelines and their risk management policies.
Do market makers and clients have a conflict of interest? Market makers are not intermediaries, portfolio managers, or advisors who represent customers (while earning commission), but rather they buy and sell goods to the customer. By definition, the Market Maker always provides a two-sided quote (the sell and the buy price). The relationship between the trader (the customer) and the Market Maker (the bank; the trading platform; Easy-Forex™; etc.) is simply based on fundamental market forces: supply and demand.
Can a Market Maker influence market prices against clients' position? Definitely not, because the Forex market is the nearest to being a "perfect market" (as defined by economics theory). This is the biggest market today, reaching a daily volume of approximately 3 trillion dollars throughout the globe. That means that there is no single participant in the market, banks and governments included, who can consistently push the price in a certain direction.
What is the main source of earnings to Easy-Forex™? Being a Market Maker, the major source to earnings is the spread between the bid and the ask prices. Accordingly, Easy-Forex™ maintains neutrality (as for the direction of any or all deals made by its traders), since the leading source for its income is the spread it earns.
How do Market Makers manage their exposure? The way most Market Makers hedge their exposure is to hedge their net positions. They aggregate all clients' positions and pass some, or all, of their net risk to their liquidity providers. Easy-Forex™ hedges its exposure on a company-wide basis in a similar fashion, in accordance to authorities' instructions and its risk management policy. That is, the parent of Easy Forex US, Ltd. combines the obligations of Easy Forex US, Ltd to its customers with the obligations of other Easy Forex affiliates to their customers and hedge some or all of the net obligations with its liquidity providers. As for liquidity providers, Easy-Forex™ works in cooperation with world's leading banks which provide liquidity to the Forex industry: UBS (Switzerland) and RBS (Royal Bank of Scotland, London).
Please note that Forex trading onboard this platform is an "off-exchange" (OTC) trading, and does not involve actual spot delivery of currencies.
Please note that Forex trading (OTC Trading) involves substantial risk of loss,
and may not be suitable for everyone.
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