Owner's reply

Actually in the forex market the word “broker” is used mistakenly to cover all forex companies but keep in mind that a broker cannot be a market maker. A broker is somebody who will 100% pass on the risk from traders to another counterparty while a market maker in simple terms is a firm who takes on the risk of all trades against him.

To illustrate: if a trader buys 1m EURUSD from a market maker then this makes the market maker short (he has sold 1m EURUSD to the client). However what the market maker does next is what is the determining factor as to whether a market maker gains from trader loss. If the market maker covers the position in the interbank market then he does not gain from trader losses. If he leaves the position open then whatever the trader losses/gains the market maker gains/losses.

Typically you will find that market makers will choose to do something in between. i.e. they will decide what level of risk they are comfortable to hold and then cover any risk above that level. Another factor that might influence the decision of the market maker as to whether to cover or not is how many accounts it has and if the size of these accounts. A large number of small accounts will tend to take opposite positions so clients will cover each other out leaving the trader with a smaller risk to hedge. On the opposite side a small number of large accounts will tend to create large exposures that the market maker will tend to cover.

Another rule of thumb that can be used (and it is just that a rule of thumb) is the spreads that the company offers. You will find that most of the companies that gain from clients losses offer much tighter spreads as they do not have to pay the cost of covering traders positions.

So to sum up your question: It depends on the market maker on how he deals with his traders. The typical market maker will hold some kind of exposure against his traders. Keep in mind that this however is a generalization and not an absolute rule. If you are thinking of working with a company your best bet is to talk to them and check out their track record on the internet.