Market makers provide liquidity in the market by constantly quoting buy (Bid) and sell (Ask) prices for financial instruments, including currency pairs in the Forex market.
They make money on the difference between the buy and sell prices, called the spread.
They ensure that there are always buyers and sellers in the market, allowing market participants to make transactions quickly and easily.
This is especially important for large market participants such as banks and hedge funds.
They also help smooth out price fluctuations by buying currency when demand is low and selling when demand is high.
This contributes to more stable and predictable price movements.
Thanks to their activities, spreads remain relatively narrow.
This reduces costs for market participants and investors, making the market more accessible and attractive.
Market makers can handle large orders by breaking them up into smaller pieces and gradually introducing them into the market to minimize the impact on price.
This is important for large institutional investors.
In low-liquidity markets, where there are fewer participants and transactions, they play a critical role by providing the necessary liquidity.
They make it possible to buy and sell currencies without significant delays or deviations from expected prices.
During important economic events or news releases, currency prices can change rapidly.
Market makers continue to provide quotes even under these conditions, allowing you to react to news and execute trades faster.
Understanding these functions and their impact on the market allows market participants to better navigate trading conditions and make more informed decisions.
Choosing the right broker, being aware of the risks and utilizing strategies that take market makers’ activities into account will help you achieve your goals in the Forex market.