Do market makers and clients have a conflict of interest?
Market makers are not intermediaries, portfolio managers, or
advisors, who
represent customers (while earning commission). Instead, they buy and sell
currencies to the customer, in this case the trader. By
definition, the market
maker always provides a two-sided quote (the sell and the
buy price), and
thus is indifferent in regards to the intention of the
trader. Banks do that, as
do merchants in the markets, who both buy from, and sell to,
their
customers. The relationship between the trader (the
customer) and the
market maker (the bank; the trading platform;
Easy-Forex™
; etc.) is simply
based on the fundamental market forces of supply and demand.
Can a market maker influence market prices against a
client’s position?
Definitely not, because the Forex market is the nearest
thing to a “perfect
market” (as defined by economic theory) in which no single
participant is
powerful enough to push prices in a specific direction. This
is the biggest
market in the world today, with daily volumes reaching 3
trillion dollars. No
market maker is in a position to effectively manipulate the
market.
What is the main source of earnings for Forex market makers?
The major source of earnings for market makers is the spread
between the bid
and the ask prices.
Easy-Forex™
Trading Platform, for instance, maintains
neutrality regarding the direction of any or all deals made
by its traders; it
earns its income from the spread.
How do market makers manage their exposure?
The way most market makers hedge their exposure is to hedge
in bulk. They
aggregate all client positions and pass some, or all, of
their net risk to their
liquidity providers. Easy-Forex™, for example, hedges its
exposure in this
fashion, in accordance with its risk management policy and
legal
requirements.
For liquidity,
Easy-Forex™
works in cooperation with world's leading banks
providing liquidity to the Forex industry: UBS (Switzerland)
and RBS (Royal
Bank of Scotland).
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