Market makers are individual participants or firms on an exchange who buy and sell on their own account. These traders, usually operating as part of a major bank or brokerage, offer continuous prices in the form of both bid and ask quotes to the wider market. Market makers exist in all public markets, whether equities, forex or commodities, and are vital to ensuring liquidity is available for all participants.
Most market makers work on trading desks in banks or major brokerages, and there are strict regulatory requirements around pricing, reporting, and the taking of directional positions by the desk. These exist to ensure market makers offer a fair price to both buy and sell securities, and do not abuse their market position by front-running client orders.
The most liquid markets, such as major forex pairs, will have many market making firms available to trade with. This ensures maximum liquidity for participants, and usually lower spreads (and therefore returns) for the market maker. Indeed, some market makers operate at cost or even a small loss, on the tacit assumption that they will win other business for the firm by doing so.
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