Direct from the desk of Dane Williams.
After yesterday asking what is an ECN forex broker, it’s probably common sense to today talk about market makers.
In short, a market maker forex broker is essentially a bookmaker that takes the opposite side of your trades.
My personal recommendation would always be to choose an ECN forex broker.
HOWEVER, before writing them off completely, we need to dig a little deeper into some of the benefits they offer clients who choose them.
Again, my view is that the drawbacks of market makers outweigh their benefits.
The most significant downside is that market makers have the ability to set the prices at which their clients trade.
Essentially the price feed which you’re seeing is akin to your broker setting an overlay on top of a feed sourced from interbank market prices.
This arrangement can raise concerns about potential price manipulation or conflicts of interest because market makers may be inclined to set prices that align with their overall profitability rather than your success.
The bad kind of stop hunting is real and market makers are free to manipulate prices as they see fit to trigger clusters of stops on their platform that may not have actually been hit on the interbank market.
Another point worth considering is that market makers make their largest profits when clients experience losses.
Essentially, they act as bookmakers, which can create the perception that they are actively betting against their clients.
This profit model is at odds with your interests as a trader, where your aim is to also succeed and grow your account.
My take on market makers is why would you put yourself in this position if there’s an alternative?
However, I also want to say that it's not all gloom and doom when it comes to market makers.
Depending on your trading style and objectives, market makers certainly do offer some advantages that can be appealing.
For instance, market makers have the flexibility to provide a wide range of trading conditions and options.
This versatility can be attractive to traders who have specific preferences for their trading environment.
Additionally, as they aren’t tied down by what the interbank market has on offer at any one time, market makers often offer fixed spreads.
Which can obviously be hugely beneficial to a ton of trading strategies, especially in a volatile market.
Fixed spreads provide predictability in trading costs, ensuring that you know exactly what you'll pay for each trade, regardless of market fluctuations.
One more noteworthy advantage is that market makers can also provide negative balance protection.
Since they don't route orders directly into the interbank market, they have the capacity to protect your account balance from going below zero.
This safeguard prevents you from owing more than you've initially deposited, reducing your risk associated with trading.
Ultimately the choice between using an ECN forex broker or a market maker forex broker ultimately depends on your unique trading preferences and priorities.
While market makers offer versatility, fixed spreads and negative balance protection, they also raise concerns about pricing and potential conflicts of interest.
I would always recommend choosing an ECN forex broker but would still encourage you to carefully assess your trading goals and risk tolerance to determine which type of broker aligns best with YOUR needs.
Do what’s best for you, not what someone else tells you is best for you.
Best of probabilities to you.