Forex Market Makers vs. the world: a guide to liquidity and brokers
When you trade Forex, you might imagine your order zipping through the internet to a central global exchange where it’s matched with another trader on the other side of the world. However, the decentralized nature of the Foreign Exchange market means it doesn’t work like a stock exchange. So, who is on the other side of your trade? More often than not, it’s a Market Maker.
What exactly is a market maker in FX trading?
In the simplest terms, a market maker is a financial intermediary—often a large bank or a brokerage firm—that stands ready to buy or sell a financial instrument at publicly quoted prices. Their primary function is to provide liquidity to the market. They ensure that when you want to sell, there is always a buyer, and when you want to buy, there is always a seller.
Think of them as the wholesalers of the financial world. They hold an inventory of a currency pair and make money not by betting on which way the price will go, but by facilitating trade.
The “Dealing Desk” model: how they operate
In the Forex world, a market maker broker is often referred to as a Dealing Desk (DD) broker. Here’s a breakdown of their process:
- Quoting two prices: A market maker continuously provides two prices for a currency pair: a Bid (the price at which they will buy) and an Ask (the price at which they will sell).
- The spread: The difference between the Ask and the Bid is called the spread. This is the primary source of profit for a market maker. For example, if they quote EUR/USD at 1.1050/1.1052, the 0.0002 difference (2 pips) is their potential profit if they simultaneously buy and sell.
- Internalization: When a retail trader clicks “Buy” on their platform, they aren’t buying from another retail trader. They are buying from the market maker. The broker takes the opposite side of your trade. This is called internalization.
- Risk management: By taking the opposite side, the broker assumes risk. If their clients are net-long (more buyers than sellers) and the market falls, the broker stands to lose money. To manage this, Market Makers often hedge their risk by passing some of their net exposure to a larger liquidity provider, like a major bank.
A simple example
Imagine a Market Maker Broker for the GBP/USD pair.
- Current interbank price: 1.3000.
- Broker’s quoted price: 1.2998 (Bid) / 1.3002 (Ask). (Spread of 0.4 pips).
- You (the trader): See the price and decide to buy 1 standard lot at 1.3002.
- The market maker: Takes the other side of the trade. They are now Short 1 lot at 1.3002.
- Outcome: The broker hopes to buy back that position later at a lower price than they sold it to you. If the price drops to 1.3000, they could buy it back, pocketing the 2-pip spread as profit. If the price rises, they incur a loss, which they may hedge by buying the same amount from the interbank market to neutralize their risk.
Market Makers vs. Market Takers
To understand the ecosystem, it’s helpful to distinguish the players:
- Market Makers (liquidity providers): They place limit orders to create the order book. They supply liquidity.
- Market Takers (liquidity consumers): This is usually the retail trader. They place market orders that immediately execute against the existing bids and asks provided by the Market Makers, thus consuming liquidity.
Pros and cons of trading with a market maker
Understanding this model helps you choose the right broker for your style.
Advantages:
- Fixed spreads: Many Market Makers offer fixed spreads, meaning your trading costs are predictable regardless of market volatility.
- Guaranteed execution/fast fills: Because the broker is the counterparty, orders can be filled instantly without waiting for an external match.
- No commissions: Since they make money on the spread, most market maker brokers offer commission-free trading.
- Lower barriers to entry: They allow traders to start with very small deposits (e.g., $5 or $10).
Disadvantages:
- Potential conflict of interest: Because the broker is taking the opposite side of your trade, they profit when you lose. This creates a potential conflict of interest, though reputable, regulated brokers manage this risk through hedging and are monitored by regulatory bodies.
- Requotes: In fast-moving markets, the price at which you tried to trade might be unavailable, and the broker may offer you a “requote” at a new price.
- Price manipulation concerns: Less reputable Market Makers might be accused of “stop-loss hunting” or widening spreads artificially during news events, though this is rare among top-tier regulated brokers.
5 broker reviews
Here are reviews of five popular brokers, highlighting their features:
XM Group
Best for: Low minimum deposit and account flexibility.
XM is a giant in the industry, serving over 15 million clients with a strong reputation for transparency. As a market maker, it provides deep liquidity and fast execution without requotes.
- Minimum deposit: $5
- Regulation: CySEC, FCA (for EU entities), ASIC, IFSC.
- Key features: Offers both MT4 and MT5 platforms. They provide negative balance protection and have a very flexible account structure, including a $5 minimum deposit, making them highly accessible. They offer leverage up to 1:1000 for non-EU clients.
- Spreads: From 0.6 pips (Variable).
- Best for: Beginners and traders looking for a low-cost entry point with the security of multiple top-tier regulations.
eToro
Best for: Social and copy trading.
eToro revolutionized trading with its social features. It is a market maker that functions as a hybrid between a broker and a social network.
- Minimum deposit: $50
- Regulation: FCA, CySEC, ASIC.
- Key features: The standout feature is CopyTrader, which allows users to automatically replicate the trades of top-performing investors. The platform is extremely intuitive and offers a $100,000 demo account for practice. It also supports a wide range of assets, including stocks and ETFs, not just Forex.
- Spreads: From 0.5 pips (Variable).
- Best for: Socially-driven traders and beginners who want to learn by following and copying experienced investors.
Risk disclaimer: eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 61% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
This communication is intended for information and educational purposes only and should not be considered investment advice or investment recommendation. Past performance is not an indication of future results.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
AvaTrade
Best for: Diverse platforms and strong regulation.
AvaTrade is a long-established broker known for its educational resources and wide range of trading platforms. They are a pure market maker with in-house dealing desks.
- Minimum deposit: $50
- Regulation: Central Bank of Ireland, ASIC, FSA Japan, FSCA, CySEC (7 regulators total).
- Key features: Offers an impressive array of platforms, including MT4, MT5, AvaOptions (for options trading), and AvaSocial. They have a unique risk management tool called AvaProtect that can reimburse losing trades within a specific time frame for a fee. Their education hub, AvaAcademy, is top-notch.
- Spreads: From 0.9 pips (Commission-free).
- Best for: Traders who value platform choice, strong regulatory protection, and robust educational content.
BlackBull Markets
Best for: ECN pricing and institutional-grade execution.
While the others on this list are primarily Market Makers, BlackBull Markets is a notable exception. It is a true ECN (Electronic Communication Network) broker, meaning it passes client orders directly to liquidity providers without a dealing desk.
- Minimum deposit: $0
- Regulation: FMA (New Zealand), FSA Seychelles.
- Key Features: Offers some of the tightest spreads in the industry, starting from 0.0 pips on their Prime and Institutional accounts. They provide multiple platform choices, including MT4, MT5, cTrader, and even TradingView. They offer 26,000+ tradable instruments.
- Spreads: From 0.0 pips (with commission).
- Best For: Experienced traders, scalpers, and algorithmic traders who need the tightest spreads and direct market access.
Plus500
Best for: A user-friendly futures and CFD experience.
Plus500 is a globally recognized broker known for its simple, easy-to-use platform. They specialize in CFDs and, in some regions, futures trading.
- Minimum deposit: $100
- Regulation: FCA, CySEC, ASIC, MAS, FSA Seychelles.
- Key features: The platform is clean, uncluttered, and ideal for traders who want a no-fuss experience. They offer a risk-free demo account with no time limits. They are also a licensed futures broker in the US (CFTC/NFA), which adds a layer of credibility.
- Spreads: Variable.
- Best for: Beginners who prioritize platform simplicity and those looking for a straightforward CFD and futures broker.
80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Plus500EE AS is authorised and regulated by the Estonian Financial Supervision and Resolution Authority (Licence No. 4.1-1/18).
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