Pros Cons Market Makers.
The forex market is an over-the-counter (OTC) market between buyers and sellers around the world. Major market participants are bank institutions around the world where these banks form exclusive groups to conduct their forex transactions. This is called the interbank market. But unfortunately, retail traders can not transactions on the interbank. However, it does not mean that retail traders can not trade forex. Retail traders can trade forex through forex brokers. There are two types of forex brokers that we know that is the type of dealer (market makers) and ECN type.
Brokers with the Market Makers type are often referred to as city brokers. These type brokers set bid and ask prices on their systems, at will and display them openly on their platforms. They must be prepared to make transactions at the prices they charge for their clients, which are generally medium institutions to retail forex traders.
In doing this, the dealer brokers provide liquidity to the market with their own sources. As counterparty (for opposite parties) for any forex transaction from the price side, this dealer broker must take the opposite side of their client’s trading. In other words, every time a client sells, they make a purchase, and vice versa in order to match a transaction.
As a precaution, many city brokers then try to hedge, or protect client orders by forwarding orders to other parties. Not a few brokers also keep the client’s order and fight trading, usually to gain profit.
Brokers are also divided into two, namely retail and institutions. There is little ambiguity that institutional brokers in the form of large companies offer their exchange rates to other companies (banks, financial institutions, ECN and retail brokers). Also referred to as Liquidity Provider. Whereas retail brokers are usually companies dedicated to offering retail forex trading services to retail traders / individuals.
Provide trading platform for free and with news feed.
Easy trading platform (user friendly).
There is an adjustment of price movements, becoming less fluctuating compared to the price of ECNs.
There is a clear conflict of interest when trading because the broker is trading against the trading position of the client.
The bid / ask price displayed may be worse than that offered by ECN brokers or other airport brokers.
This broker can manipulate the price of 10 to 15 pips from other market prices.
Frequent slippage and market freeze when news releases or major fluctuations (hectic) occur.
Frequent off-quote and requote.
The style of trading scalpers may not be favored by the dealer brokers.