Hi @rsejoo123,
Your comments about market makers reveal some misconceptions about the forex market we would like to address. It’s worth noting that for institutional traders, FOREX.com’s parent company, GAIN Capital, offered ECN solutions through the GTX marketplace which we sold earlier this year.
However, for retail traders we are a market maker, because we believe this is the best way for us to provide our retail clients with reliable pricing at retail trade sizes while effectively managing our own risk. We are fully accountable for every execution and don’t outsource that responsibility to a third party. You can see some of the benefits of this approach from the chart you included in your original post.
Even if a particular retail forex broker tells you they are not a market maker, that does not change the fact that they must offset your trades with another firm that is a market maker. That’s because market makers perform a vital service, not only in forex, but in many financial markets, including major stock and futures exchanges.
Consider what the world’s largest stock exchange says about how their market model works:
The cornerstone of the NYSE market model is the Designated Market Maker (DMM). DMMs have obligations to maintain fair and orderly markets for their assigned securities. They operate both manually and electronically to facilitate price discovery during market opens, closes and during periods of trading imbalances or instability. This high touch approach is crucial for offering the best prices, dampening volatility, adding liquidity and enhancing value.
DMMs apply their market experience and judgment of dynamic trading conditions, macroeconomic news and industry-specific intelligence, to inform their decisions. A valuable resource for our listed company community, DMMs offer insights, while making capital commitments, maintaining market integrity, and supporting price discovery.
As in any industry, whether it’s cars, clothing, hotels or restaurants, what matters is the quality of your service provider. When it comes to choosing a forex broker, the most important factor is strong regulation. Recently, there have been several discussions on this forum highlighting the dangers of trading with unregulated brokers:
Forex is regulated by government bodies in major financial centers around the world. For traders who live in those major trading centers, it makes sense to focus on brokers regulated in their home country.
Traders who don’t live in one of those countries should consider brokers regulated in major financial centers appropriate for their region. For example:
- In the US, forex is regulated by the CFTC and NFA, and brokers are required to maintain net capital of $20 million.
- In the UK, forex trading is regulated by the FCA and funds are protected for up to £50,000 per client by the FSCS.
- In Canada, forex trading is regulated by IIROC and funds are protected for up to $1 million per client by the CIPF.
Once you have focused your search on the well-regulated brokers appropriate for your region, then you choose from among those regulated brokers based on other important factors such as customer service, trading platforms, charting options, educational resources, research and spreads.
Where do you live?
