Market makers – who are they and whether they are a threat to the trader? Alexander Sivtsov.

In this article, we’ll figure out who these market makers are and whether the trader should be afraid of them. On the Internet you will find a lot of articles and video blogs that market makers play against the market and just hunt for the stops of traders.

First, let’s find out who these market makers are

Market makers are large banks and financial institutions that determine the exchange rate in the FOREX market through a significant volume of transactions in the market. The main task of market makers is to maintain the liquidity of a particular instrument, by applying for purchase and sale. The main market makers are large commercial banks, which include such banks as Deutsche Bank, Mizuho Bank, Barclays Bank, PBS, Citi Bank, Chase Manhattan Bank, Union Bank of Switzerland and others.

How does a market maker set a course in the market?

We have already figured out that basically the exchange rates on the market are determined by large commercial banks, but how it actually happens. The bottom line is that all large banks have a very large number of different clients, including the same brokerage offices or small banks, and they, in turn, have their clients in the face of the same brokerage offices and other different clients, who conduct operations in the foreign exchange market.

The main component for the formation of the marketmaker’s course is the bids of customers for the purchase or sale of the currency. These applications are submitted by the bank to the trading floor, inviting other bidders to buy or sell a certain amount of currency at various rates. The bottom line is that the market maker is not alone in the market, there are others that also put forward bids, due to what the demand and supply is formed in the market, which is the engine of the price of a currency instrument in one direction or another.

The game against the market and the hunt for stops

This judgment is only half right, and this half is about the game of the market maker versus the market. This is obtained by maintaining liquidity, which prevents the trading instrument from collapsing into the abyss or flying above the clouds, as market makers provide the market with supply and demand.

Often among those who teach how to trade there are specialists who claim that market makers see our stoplosses and do everything to break them and leave the weaker market participants without money. This judgment is attributed to the conspiracy theory in the market. In fact, a market maker and a simple trader see the market in different ways. The trader sees the currency market as the movement of currency pairs on the chart, and the market maker simply sees the bids of traders for the sale or purchase of one currency for another.

The market maker always acts in his own interests and the interests of his clients, for what he receives excellent commissions and income from the difference between buying and selling the currency. Breaking stops is nothing but the execution of a large volume of transactions in one direction to ensure demand in the market, which leads to the closure of transactions on the stop, since the stop-loss put by the trader is the same application for the purchase or sale of one currency for another.

Advantage of market makers before other market participants?

We again return to the clients of the market maker, on the basis of which the commercial bank is already making an initial assessment of the demand for the “x” tool for a certain price, and the exhibited offers on the site by other participants give a more complete picture of the market situation. In simple words, a market maker simply has a much larger amount of necessary information than a trader.

Can a market maker move the price in the market?

Naturally, if necessary, a market maker can move the price in the market, in order to conclude a deal at a more favorable price. To do this, it is only necessary to assess the current demand and supply in the market and, if necessary, to use its own resources in trade, and then the whole thing in the psychology of other market participants that will help implement the market maker’s plans without even knowing it. It often happens that the plans of several large players are similar, which causes significant fluctuations in the market.

Should the trader be afraid of market makers?

As I have already explained above, the market maker always acts in his own interests and the interests of his clients, but he is also a participant in the market, like an ordinary trader – he also makes predictions about the further movement of the instrument and tries to profit from it, but at the same time has several advantages. In general, the market is driven by the psychology of the participants, which is well understood by the senior players and profit from it, they do not set themselves as a goal to ruin other participants, rather they use their total potential to provide liquidity in the market and price movement in the right direction, based on demand and offers on the market. A trader should not be afraid of a market maker, it is better to try to understand him and move along with him, which will ensure a higher profit.

Read the opinions of experts on the website of the company Ester Holdings Inc., which will help you accurately assess the current situation in the market and not be afraid of the activities of market makers.

Alexander Sivtsov