247 Currency Trading Online Spot
An Introduction to Forex Online Market Makers
Market makers are regarded as the complement to the customer. Market makers do not function as an intermediary or trustee.
Market makers are responsible for protecting the position of the client in accordance with its policies, which may include compensating different positions of the client, protection through liquidity issuers, and its equity investment, at its judgment.
In foreign exchange, the market makers can be banks, or trading software, that purchase and trade financial tools in the market. That is the complete opposite of intermediaries, which acts on the clients' behalf, deriving their income from commission.
Based on its definition, market makers complement the entire position of the client, and they always present a two-sided quote (BUY and SELL). Therefore, the trading relationship between the market maker and the client is purely professional.
Market makers consider the complete position of their customer, as a whole, which is applicable for banks, and other market makers, in the market of foreign exchange. They compensate between the various positions of the clients, and protect their total exposure, based on the guidelines of the authorities, and their policy for managing risks.
Market makers do not perform similar roles as intermediaries, portfolio managers, or advisors, who act on behalf of the customers, while at the same time earning commission: instead, they purchase and trade products to the customer. Market makers always present two sides of the coin (the sell and the buy price), thus, always remain neutral with their clients.
Market merchants and banks are involved in the same business of buying and selling goods to its customers. The existing relationship between the customer and the market maker is merely grounded on the basic market indicators: supply and demand.
Market makers do not have any effect on the prices of the market based on the position of the client. This is due to the fact that foreign exchange is close to becoming an ideal market.
At present, foreign exchange is the biggest market to date, yielding day-to-day volumes amounting to three trillion dollars spread throughout the world. This implies that there is no single player in the market (which can include banks and national governments) that can constantly direct the price in a particular direction.
The manner in how the majority of market makers protect their exposure is by means of mass hedging. They combine the entire position of the client and then pass a few or the entire net risk to their liquidity providers.