In plain English
What Market maker means
In retail forex and CFDs, a broker described as a market maker may quote the prices at which it will transact with customers and become their counterparty. The firm may manage the resulting exposure by holding it, offsetting it with other clients, or hedging externally. In exchange-traded markets, market makers may instead post quotes under venue-specific rules to support trading liquidity.
Why it matters
A market-maker model creates a direct counterparty relationship, which should be understood before trading. That relationship does not automatically mean poor execution or unfair pricing, and an agency-style model is not automatically superior. Execution quality depends on quoted spreads, fill practices, order handling, risk controls, disclosure, and the market conditions at the time of the order.
Example
A retail forex dealer quotes USD/JPY at 155.200/155.205 and accepts a customer’s order to buy at its quoted offer. The dealer is the seller to the customer and records the trade as principal. It may later hedge its net exposure with another market participant. In this simplified example, the dealer is acting as a market maker.
Quick answers
Common questions
Is a market maker always the customer’s counterparty?+
Often, when it trades as principal, yes. But the exact legal counterparty and the firm’s ability to hedge or transfer exposure depend on the product, contract terms, and jurisdiction.
Are market makers only used in forex?+
No. Market makers operate in many financial markets, including listed equities, options, bonds, and exchange-traded funds. Their quoting obligations and market structure vary by venue and instrument.
Sources