A market maker is a firm that quotes both a buy and a sell price in a financial instrument or commodity, hoping to make a profit on the bid/offer spread, or turn.
In foreign exchange trading, where most deals are conducted over-the-counter and are, therefore, completely virtual, the market maker sells to and buys from its clients. Hence, the client's loss and the spread is the market-maker firm's profit, which gets thus compensated for the effort of providing liquidity in a competitive market. This extra liquidity reduces transaction costs and therefore facilitates trades for the clients, who would otherwise have to accept a worse price or even not be able to trade at all. Most foreign exchange trading firms are market makers and so are many banks, although not in all currency markets.
I think I understand what a broker marketmaker is: Providing bid/offer prices and handling clients orders "in house" and not submitting them to the market directly.
However, is a marketmaker necessarily a broker?
Thanks
In foreign exchange trading, where most deals are conducted over-the-counter and are, therefore, completely virtual, the market maker sells to and buys from its clients. Hence, the client's loss and the spread is the market-maker firm's profit, which gets thus compensated for the effort of providing liquidity in a competitive market. This extra liquidity reduces transaction costs and therefore facilitates trades for the clients, who would otherwise have to accept a worse price or even not be able to trade at all. Most foreign exchange trading firms are market makers and so are many banks, although not in all currency markets.
I think I understand what a broker marketmaker is: Providing bid/offer prices and handling clients orders "in house" and not submitting them to the market directly.
However, is a marketmaker necessarily a broker?
Thanks
