What is a market maker?
A market maker in forex is a financial institution or an individual that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. Market makers facilitate trading by providing liquidity, meaning they stand ready to buy or sell financial instruments to maintain an orderly market.
They play a crucial role in ensuring that there is always a counterparty available to take the other side of a trade, which helps to keep the market running smoothly. Market makers are typically compensated through the spread and may also charge a commission on trades.
Example of a market maker
Let’s consider Bank X, which acts as a market maker in the forex market.
Bank X provides buy and sell quotes for currency pairs such as EUR/USD, effectively creating a market for traders to buy or sell currencies.