There are a lot of Forex brokers that might get you confused when you are starting out as a Forex trader. All of these Forex brokers are categorized into two main groups; the ECN Forex broker and the market maker Forex brokers. In this article, we will focus on market makers Forex brokers but you can choose either one of them.

What is a market maker?

Market Maker Forex brokers refers to a firm that is authorized to create and also maintain a market in a particular financial instrument. The market makers are allowed to quote, buy and also sell financial commodity prices. Their profit is made on the small differences between the offer and the bid spreads. They are rewarded because they keep liquidity and thus creating efficiency in that particular financial instrument.

Why are forex market makers ?

When you are placing an order, the position that you see is not as simple as it looks. Your position might get executed within a matter of seconds but behind everything, the broker does all the work of matching the seller and the buyer, and vice versa. Without them, it would be difficult for a seller or a buyer to get the same exact shares. Forex brokers buy huge amounts of shares from sellers even in situations where they don’t have a buyer so as to make the transaction faster if you happen to place an order with them. The problem is that by doing so , market maker Forex brokers risk a large sum of money that they stand to lose if the prices fall while they still hold their shares .

They avoid this from happening by keeping the spread which can be a difference of $0.05 between the ask price and the bid. They provide extra liquidity that allows a better trading experience . When choosing a Forex broker , you should first ensure that they are regulated by an approved official organization. There are a lot of them but you can eliminate scams by doing a little internet research . Note that, market makers do not charge a fee for their services since they make their profits from the spread .

Advantages of Forex Market Makers

• When an trader places an order to buy a currency pair which nobody wants to sell, market makers sell that position to that trader from their own portfolio.

• The prices of this type of broker are less volatile and smoother than ECN

• You can open an with only few hundred dollars because most of them provide micro and a mini account .

Disadvantages of Forex Market Makers

• There is a possibility that they might trade against you

• There are some that will not allow you to make a lot of trades within a short period of time in a day.

• If they cannot match the display price on the ECN, you will not get it.

In conclusion:

You should be taking your time when you are choosing a Forex broker because they affect your trading . Spreads are very important because these are what makes the difference between profits and losses. A market maker might has a bit higher spread than STP or ECN brokers, however, they maintain the exact same spread constantly. At a STP broker, you might have higher spread on news releases or such event, so select wisely.