The market maker is a participant in the exchange or over-the-counter market, who at his own risk accumulates an asset in order to regulate the market. If the price of an asset drops sharply, the market maker holds panic, buying back the asset. If the price rises, the market maker “throws” the asset onto the market, satisfying demand and knocking down the price. In the stock market, market makers can be individual companies or the exchanges themselves, Forex market makers are brokerage and dealer companies.
Market maker earnings – spread. If the seller is ready to sell the asset for 300 cu, and the buyer – to buy for 200 cu, then the Forex market maker comes to the market, who buys the asset for 260 cu from the seller, and sells to the buyer for 240. His earnings – $ 20.
Forex market makers: their influence and manipulation possibilities
An ECN account is considered equivalent to the speed and transparency of order triggering. In the B-Book scheme, the broker itself acts as the counterparty for the trader’s transactions, therefore the A-Book scheme (the withdrawal of trader’s applications to the international market) is considered reliable due to the absence of a conflict of interest. But in the real market, novice traders lurk Forex market makers. They can use their influence on the liquidity of the market to their advantage: in the glass of prices they see stop-losses and take-profits, thanks to a large reserve of accumulated assets, they can swing the market so that the price will take stops and will not reach pending orders. P >
How a market maker manipulates in practice:
- there are sellers on the market who are ready to sell, tentatively, 10 lots for the price of $ 25. USA, 12 lots – at a price of 26.5 dollars. USA, etc .;
- the market maker places an order to buy 100 lots at once, raising the price upwards. Since the market maker sees a glass of prices, the amount of lots will be such as to catch the stop losses of traders who have opened short positions;
- “Bears” immediately rolled positions at a loss, meeting the demand for an asset at an inflated price. The Forex market maker at the peak (at the stop level in short positions) comes out of the market, earning on the bubble he created, taking money in the footsteps.
Often the broker himself acts as a market maker, who, although he places the trader’s request directly to the foreign market, becomes a player on the opposite side.
How to protect yourself from market makers:
- Do not trust technical indicators. They reflect price changes based on historical data, while market makers can influence real-time quotes;
- not to enter the market on a sharp rise;
- use a trade strategy against the trend, that is, against the crowd.
Forex market makers are one of the dangers for a novice trader, which can be turned into an advantage. You will not see the work of market makers on a demo account, therefore, open a real cent account and practice!