How Market Makers Work
Title: How Market Makers Work
Market makers are a key part of the Forex ecosystem, providing liquidity and ensuring that traders can buy and sell currencies at any time. Unlike regular traders, market makers act as counterparties, meaning they take the other side of a trade. Understanding how they work is essential for navigating the market effectively.
Market makers earn money through the spread, which is the difference between the bid and ask prices. For example, if EUR/USD has a bid of 1.1000 and an ask of 1.1002, the 2-pip difference is profit for the market maker. Their goal is not necessarily to make clients lose money, but to earn consistently from spreads on high volumes of trades.
Another role of market makers is managing liquidity. They ensure there is always a price at which traders can enter or exit a position, even during volatile markets. To protect themselves, market makers may hedge large positions with other institutions or offset risk internally.
Some retail traders believe market makers manipulate prices to hunt stops or trigger losses. While brokers can influence spreads or execution speed, most moves are a result of market mechanics, liquidity needs, and institutional activity, not intentional targeting.
In essence, market makers are the backbone of Forex trading, providing access and liquidity. Knowing how they operate helps traders understand spreads, execution, and market movements, allowing smarter and more disciplined trading.
