Forex Market
Finotec as a Market Making in Forex
Definition of a Market Maker
For each client transaction, there is a counterparty – the Market Maker. Usually, the Market Maker offsets his clients’ positions for hedging purposes. Market Makers hedge their exposure through liquidity providers (usually banks) according to their own risk management policy and to legislation in force. Market Makers usually treat their customers’ positions as a whole and hedge their exposure on bulk. They then pass the risk on to their liquidity providers. Concerning these liquidity providers, Finotec works in cooperation with leading international banks such as the Royal Bank of Scotland.
In the Forex market, the main market makers are of course banks, but brokers such as Finotec are also considered market makers since they are the immediate counterparty to the transactions and not a simple intermediary.
How does Market Making in the Forex industry work?
By definition, the Market Maker always offers its customers (traders) two-sided quotes (the bid and the ask price) to maintain neutrality with regards to the client. The market forces of supply and demand are at the basis of the relationship between the Market Maker (banks or trading platforms such as Finotec) and the customer (traders).
In that sense, Market Makers cannot influence market prices against their customers’ positions. And since Forex is considered the closest market to the economic theory of perfect competition (due to its unique characteristics such as its extreme liquidity, its geographical distribution, its traded volume, its many participants, its $3 billion daily average trade volume, its almost non-stop trading times, etc.) it can’t be “cornered.”