forex market makers

What Is the FOREX Market Maker?

To trade in the Forex -- or foreign exchange -- market, you have to open an account with a Forex broker first. One type of broker that you could choose to work with is a market maker. A market maker is a type of broker who sets the price of the two currencies that are being traded.

Market Makers vs. ECNs

In the Forex market, two types of brokers are available to trade with. One type is the electronic communications network or the ECN. With an ECN, the prices in the market for a currency pair are simply passed on to the trader. The other type of broker is the market maker. A market maker is a broker who does not pass the order through to the market but instead sets the price for the currency pair.
Counter Party

When you trade with a market maker, the broker takes the opposite position of your trade. The market maker does not actually pass your trade through to the market. Instead, it simply keeps your trade and then takes the opposite position to what you choose. For example, if you place a buy trade, the market maker will profit if the trade goes in the opposite direction. This creates a conflict of interest between you and the broker.
Even Flow of Orders

While it may seem like you are engaged in a losing proposal going up against a broker, this process is actually necessary to even out the flow of orders in the market. At all times, it can be difficult to ensure that enough traders are available to take the counter position to your trade. When you work with a market maker, you should be able to get a trade through at any point. The broker can always take the opposite position at any time.
Considerations

One of the advantages of working with a market maker is that the pricing information tends to be a bit smoother than what you will find from an ECN. With ECNs, the pricing information comes directly from the market and is based on real-time information. When trading with a market maker, the pricing information is not quite as volatile. On the other hand, when you trade with an ECN, you can sometimes get a better spread.