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What is A Market Maker?

Market Maker

In the Forex market, various brokers deal with different client profiles and offer various trading options. These include Non-Dealing Desk (NDD), Market Makers (MM) or Dealing Desk (DD), and hybrid brokers. A market maker, also known as a designated broker (DB), is crucial in ETF trading, ensuring smooth securities exchange between buyers and sellers. They provide liquidity by selling units to buyers and buying from sellers. Let’s now explore the functions of market makers, their pros and cons, as well as the differences between brokers and market makers, and more.

Functions of Market Makers

Market Makers play important roles in trading

  1. When you want to buy or sell stocks, a broker steps in to make the trade happen. They take on the other side of the trade, ensuring there’s enough money to make it happen. This can be risky for the broker, but it can also lead to profit.
  1. To balance this risk, the Market Maker adds a little extra to the price you see. This extra bit is called the spread. It helps cover any losses they might face.
  1. Market Makers offer different spreads. They might quote prices that are a bit higher or lower than the market rate. Even though the extra money they make might seem small, it adds up because they handle lots of trades.
  1. Unlike some other traders, Market Makers sometimes trade against their own clients. This isn’t against the law, but it can create conflicts of interest. This is especially true when the broker isn’t just the middleman but also the one you’re trading against.
  2. To avoid problems, it’s best to choose brokers with good reputations and licenses. There are also options like White Label solutions, which give you a trading platform and support from trusted providers like Smart Broker Solutions.

Pros and Cons

You can start with small money in your account.The cost might change a bit compared to the main market.
You can borrow more money than usual (up to 100 times what you have).Sometimes they can’t find someone to trade with.
The buying and selling costs are usually steady.If they mess up, they might go bankrupt.
They let regular people trade in markets, usually for big players.They might care more about making money than helping you.
You can buy or sell smaller amounts than usual.

Market Makers can be better than other brokers, but they might not always look out for you. So, pick one with a good reputation.

Broker vs. Market Maker: What’s the Difference?


  • In finance, brokers are middlemen who help investors buy securities. These securities can include things like stocks, mutual funds, or even real estate. Brokers need to be licensed and follow rules set by organizations like FINRA or the SEC. They have to act in their client’s best interests.
  • Brokers can give advice on what securities to buy. Nowadays, with online trading, investors can make transactions without talking much to their broker. There are two main types of brokers:
  • Full-Service Brokers: These brokers offer more services like advice, research, and retirement planning. They might also provide trading platforms and options contracts for hedging. Investors pay more for these services through commissions and fees.
  • Discount Brokers: These brokers operate online and charge lower fees because they don’t offer personalized advice. They’re good for investors who know what they want to trade.

Market Maker

  • Market makers are usually big banks or financial institutions. They help keep the market running smoothly by ensuring there’s enough trading happening. Without them, it would be hard to find buyers or sellers for securities.
  • Market makers buy and sell securities themselves to keep the market moving. They set prices based on supply and demand. When demand is high and supply is low, prices go up, and vice versa. Market makers have to stick to the prices they set.
  • Sometimes, a market maker can also be a broker, which might lead to conflicts of interest. Investors need to be careful and check if there’s a clear distinction between the broker and the market maker.
  • Big market makers include companies like BNP Paribas, Deutsche Bank, Morgan Stanley, and UBS.

How Market Makers Make Money

Market makers make money by charging a fee on the prices when people buy or sell stocks. They set the prices for buying and selling stocks. When you sell a stock, you get a little less than its actual price. And when you buy a stock, you pay a bit more than its actual price. The difference between these prices is how market makers make their profit. They also earn money by helping their clients trade smoothly.

In the market, there are two important groups: brokers and market makers. Brokers help people buy or sell stocks. Market makers, on the other hand, are usually big companies or banks. They make sure there’s enough trading happening in the market.

Why is it important to understand the market maker’s role?

Understanding the role of market makers is crucial for everyone involved: the company offering ETFs, the investors, and the market makers themselves. Market makers are essential because they help create and redeem ETF units, and they also make sure there’s enough liquidity in the market for ETF trading. 

This means they make it easier for investors to buy or sell ETFs at fair prices that truly reflect the value of the securities within the ETF. So, knowing about market makers helps everyone make better decisions and keeps the ETF market running smoothly.


Market makers are significant in the trading system due to their support during transactions between buyers and sellers, which enhances liquidity. They work by incorporating spreads that balance risks, but in some cases they may trade against clients, thereby creating conflict of interest. Nonetheless, there are instances where market makers can be more concerned with profits than the interests of the clients. The knowledge of roles is therefore crucial for making informed choices and ultimately beneficial to both investors and the market that need efficiency.