In any market there is the existence of companies, institutions and groups, who are the ones who create the market and at the same time the one who buy and sell according to the laws of supply and demand. Now, in the Forex currency market, the term market makers refers to banks, the various Forex trading platforms, among others; and these operate in conjunction with users as independent investors for the creation of the well-known currency trading.
It can be said that the market maker is the opposite of the investor, these market makers, in some way or another have interaction with their clients regardless of the position they occupy in the market and also with banks, where thanks to this, and they create cash flows in both directions. A market maker does not refer to an intermediary or an adviser who charges commissions for providing their services, because it is not usual for FX to have these mentioned commissions. These are rather dedicated to the purchase and sale of foreign currency for all its investor clients.
The source of origin of the profits lies in the difference of the prices that exists between the purchase of a certain currency and its respective sale, this difference is called «spread». With this, it is meant to imply that the platforms of investments which exist in the Forex market through electronic orders, put investors and banks in contact with each other, in order to efficiently operate the circulation of the capital that provides fluency to the market.
When an investor client gives an order for Forex trading to be executed, the existence of someone who is able to accept that offer at the same time and at the same price is necessary. The curious thing is that, even knowing it is the largest currency market in the world, this does not always happen, but investors can exercise orders at any time. This is where the market makers make their work.
Market makers offer steady prices for buying and selling currencies all day, prices that are updated every 30 seconds according to the supply and demand that exists. That said, the investor is able to accept these prices even when there is no existence of an opposing party because that supply is remunerated to the market makers and therefore ensuring the fluency and continuity of the market by participating in it when it is necessary regardless of if this is a benefit or in the worst case a loss.
These market makers cannot operate without prior registration and authorization by different institutions such as the CFTC (Commodity Futures Trading Commission) of the United States or the FSA (Financial Services Authority) of Europe.