Top Market Makers Forex Brokers - 2020

What is a “market maker” brokerage? Basically, it is a broker who “makes” the market for their client to trade in, usually without passing off the exposure to the real market. For example, suppose Broker A has at one moment clients who have net open long trades valued at $300 million worth of the EUR/USD currency pair, and other clients who have net open short trades in the same valued at $250 million. This brokerage is exposed to $50 million of EUR/USD on the long side, but usually does not even cover its liability by opening a corresponding hedge in the real market. In fact, no Euros or Dollars have changed hands in this model, the trades are all theoretical and no real transactions have been made. This is how “market maker” Forex brokerages operate, although sometimes they will hedge with a third-party liquidity provider minute by minute to offset their net market exposures which their clients’ positions leave them with. Another method of controlling risk which is used by some market-makers is hedging against the trades of those clients with a recent multi-month profitable trading record: these brokers effectively make money from charging spreads to profitable traders and receiving all the losses of unprofitable traders. Market maker brokerages profit when their clients lose money. In fact, if all their clients made money trading, they would go out of business. While it is true this creates a conflict of interest, there are reasons why trading with market makers can be a good idea for traders. Execution speed and liquidity can be fast as trades can be processed instantly. Ironically, in the event of very large and unexpected market movements, market makers can be much better protected than ECN/STP brokers, as they are typically either exposed only very partially to the real movements of the market, or not exposed at all, meaning that they are less likely to go bankrupt and leave clients waiting for a year or more to get their deposits back.