What is a Market Maker
and Why Market Making?
Market Makers vs Brokers vs ECNs
Retail forex trading can be broadly grouped into three categories: market makers, brokers and electronic communications networks (ECNs). The difference between the three is how they provide currency rates to the retail trader.
- Market makers make the rates. In most cases they are banks, hedge funds or in this case, MahiFX
- Brokers pass on the customer's trade to a market maker and charge a commission or fee on each trade.
- ECN’s blend rates from both brokers and market makers, and like brokers, charge per trade.
What is a market-maker?
A market-maker is typically defined as a broker-dealer firm that publicly quotes both a buy and sell price for a currency or commodity that is traded on a regular and continuous basis. Market makers compete with one another to offer the best prices for their customers.
Market-makers exist in order for traders to be able to buy or sell immediately, rather than having to find someone to buy from, or sell to. The broker-dealer firm is ready at any point during trading hours with an ask and bid price. This means that when you place an order to buy or sell, the market-maker will either buy from you or sell from their own inventory; they are literally ‘making a market’ for the stock.
Why trade with a market maker?
Market makers, like MahiFX, can offer tighter spreads, which is the single most important factor in improving your returns. MahiFX don’t add a commission or a spread to the institutional rate and can offer consistently better pricing than a middleman passing on liquidity from a bank or hedge fund.
Many brokers and ECN’s promise low spreads, or sometimes even no spread at all. However, as with many things, there’s a catch. What % of the time do you actually see these spreads? Do they publish their fill rates? Do they have minimum trade and account sizes? Our goal is to offer you pricing consistency and total transparency and will never offer ‘from’ rates or try to mislead you.
Humans, not machines
As the institutional FX space has grown so has the emergence of computer generated algorithmic trading. Machines hook up to ECN’s and trade at alarming speeds. Trading like this requires that rates move at machine speeds and causes something known as ECN flicker, where rates move around so fast its virtually impossible for a human to click on them. You are human, and we think it’s important you have access to tight pricing that you actually click on and access consistently.
Fairness and transparency
Order confidentiality is paramount and our pricing engine is completely separate to the order book so it cannot anticipate client orders. Orders are executed on a neutral, fair price stream, which is constructed by dispassionate machines with no human intervention.
Best Trading System for
our FX trading platform at
the FSTech Awards 2013
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