Visit AvaTrade76% of retail investor accounts lose money
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Visit EasyMarkets75% of retail investor accounts lose money
Visit XTB79% of retail investor accounts lose money
Visit Forex.com81% of retail investor accounts lose money
Visit Plus50077% of retail investor accounts lose money
Visit Saxo Bank72% of retail investor accounts lose money
Visit Roboforex61.41% of retail CFD accounts lose money
Visit City Index70% of retail CFD accounts lose money
Visit OandaCFDs are not available to residents in the United States
A Forex (Foreign Exchange) market maker broker is a type of brokerage firm that act as a counterparty to traders’ orders rather than as an intermediary between the traders and the liquidity providers.
Market maker brokers are sometimes also called Dealing desk broker (DD) or dealer.
Forex market maker brokerages function differently from ECN (Electronic Communication Network) or STP (Straight Through Processing) brokerages, which primarily act as intermediaries, facilitating trades between market participants. Market maker forex brokers, on the other hand, enhance market fluidity by actively participating in trades. This often involves taking the counter position to a client’s trade to ensure uninterrupted and seamless market operations.
Market maker forex brokers offer almost immediate order execution and flexibility on their trading platforms, due to their role as counterparties—buying when clients sell, and selling when clients buy—giving them near-unlimited and instant internal liquidity. This also allows them the possibility to offer fixed spreads. However, they often have stricter Terms & Conditions, possibly prohibiting trading practices like scalping, algorithmic trading, or hedging.
While market makers sometimes trade against traders, it’s to protect their business rather than make traders lose. They earn when a trader loses, but also lose when a trader wins. To mitigate this, market makers often hedge trades to balance potential losses. For instance, if a trader buys a forex pair, the market maker may hedge by buying the same amount from the market, offsetting any losses if the trader’s trade is profitable.
The InvestinGoal team has prepared this top ten featuring some of the best forex market maker brokers. You will find the following features explained for each broker:
- Assets features
- Spreads on forex
- Techniques allowed
What are the best market maker forex brokers?
Here below you can find the best forex market maker broker list.
How does a forex market maker broker work?
A Forex market maker brokerage operates by providing liquidity to the market through maintaining a firm bid and ask price for a specific currency pair. In essence, they ‘make the market’ by being always ready to buy or sell at publicly quoted prices.
A market maker forex broker sets autonomously the bid and ask prices for the currency pairs they cover.
By constantly offering to buy or sell a currency pair, the market maker adds liquidity to the market. This is crucial for the smooth operation of the Forex market, as it ensures traders can always execute their trades, even if there aren’t other traders looking to take the opposite position at that moment.
When a trader places a trade through a market maker brokerage, the brokerage often takes the other side of the trade. For example, if a trader wants to buy a specific currency, the market maker sells it to them, and vice versa. This is different from other types of brokers, such as ECN or STP brokers, who merely pass the orders onto liquidity providers.
Market maker forex brokers hold a stockpile of various currencies in their inventory, similar to how a traditional store holds a variety of goods. They are always ready to buy or sell from this inventory to maintain an active and liquid market for traders. This is an ongoing balancing act, in fact they need to constantly adjust their inventory levels to respond to market conditions. For example, if there are more buyers than sellers for a particular currency pair, the market maker will sell from its own inventory, thereby providing the needed liquidity. On the other hand, if there are more sellers, the market maker will buy the currency pair, adding it to their inventory. They adjust the bid and ask prices they offer to attract more buyers or sellers, helping them balance their holdings and manage their inventory.
Of course, there is risk involved in being a market maker forex broker, as they may end up holding a large amount of a currency if the market moves against them. They manage this risk through various strategies, including diversifying their currency holdings and using complex risk management and hedging strategies when dealing with the traders’ operations.
How to choose a market maker broker
- Opt for a Regulated Market Maker Broker: Market makers always act as a counterparty in both sell and buy orders. If the market maker isn’t honest, they may manipulate buy and sell prices, causing you to lose money. Therefore, it’s best to select a regulated broker for forex trading.
- Verify the Foundation Year: While choosing a regulated broker is crucial, it’s equally vital to ascertain how long the broker has been operational in the market. “Regulated” does not necessarily equate to “100 percent safe,” so verifying the duration a market maker brokerage firm has been active is essential information to consider.
- Select a Market Maker Broker with Low Spreads: Generally, market makers brokers charge a markup to the trading spread. In other words, they slightly increase the spread between the actual Bid and Ask values, and that is their gain. Market makers often charge spreads as low as 1 pip, but you can find some with spreads as low as 0.6 pips.
What is it like to trade with a market maker broker?
Market maker forex brokers generally offer almost instantaneous order execution and a very flexible trading environment.
However, one should also be aware that market makers have the power to manipulate the prices of the assets they offer and that they have more stringent T&Cs compared to other forex brokers.
Ultra-fast execution comes from the fact that market makers act as a counterparty, that is, they buy what you sell, and they sell what you buy. This gives market makers almost unlimited and instant internal liquidity compared to NDD (non dealing desk) forex brokers which instead match your orders with those of other players in the market and are dependent on external liquidity providers.
In addition, being able to create an internal market makes market makers extremely flexible, especially in terms of costs. So much so that they are the only types of forex brokers that can offer fixed spreads to their clients.
However, on the downside, there is always a risk of manipulation when trading with a market maker. Additionally, if you are looking for a broker to engage in scalping, algorithmic trading, or hedging, you may be disappointed to find that most market makers prohibit this type of trading, unlike NDD forex brokers.
Market maker brokers (DD) vs ECN-STP brokers (NDD)
The main difference between market makers (or DD which stands for Dealing Desk), and an ECN-STP (or NDD which stands for Non Dealing Desk) broker, is that market maker brokers acts as a counterparty to all of its clients’ orders, while ECN-STP brokers act as a bridge between the trader and the international markets without interfering in execution.
This is the main reason why many retail traders prefer ECN-STP brokers over market makers: without the interference in execution, ECN-STP brokers are able to offer very low spreads and overhead costs because they do not have to protect themselves from the risk of acting as a counterparty.
In addition, ECN-STP forex brokers (with the same regulations) are generally seen as more transparent than market makers, precisely because there is no conflict of interest in their order management.
Do market maker brokers trade against the traders?
Sometimes the market makers trade against the traders. However, their goal is not making the trader lose money, but rather to protect their own business.
In fact, if the market maker acts as a counterparty between clients’ orders, it means that it makes money when the trader loses, but it also means that it loses money when the trader takes a winning trade.
So, what happens is that market makers generally hedge the trades in order to compensate for any losses they may incur.
For example, if the trader opens a long position on the EUR/USD forex pair, the broker is actually “selling” USD to the trader. So the market maker, in order to protect itself, might hedge this order by buying from the market the same amount of USD.
In this way if the trader gains $100 from the trade, the market maker will gain as much, thus offsetting the loss.
Market maker brokers pros and cons
- Extremely fast order execution
- Flexible trading environment
- There is a conflict of interest between market makers and traders
- Scalping, hedging and algo-trading are generally not allowed
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