Market Makers vs Agency Model Brokers
Much has been said about these types of brokerage business, but we are here to show you a wise, yet unpopular opinion.
In recent years, market makers have been blamed for all the ills of the forex market because these brokers actually expect a trader to lose money. Agency Model brokers, also known as A-Book brokers, have been hailed as the firms serving traders without any conflict of interest. The recent events of Black Thursday have been a huge game-changer, as it is mostly agency model brokers who have lost a lot. As some brokers became insolvent, the trading community began to question whether market makers were really a bad choice. Read on to see an unpopular point of view and argument.
Our experts love licensed and regulated market makers. Why is this so? Arranging a good quality service as a market maker costs less than arranging a decent ECN brokerage. With Market Making Model, a broker must ensure a good transmission of prices and orders between his own server and the client’s terminal. The A-Book broker has to invest in all the infrastructure to get your order straight to market, which usually happens more slowly. On top of that, market makers don’t care much about the spread, as it’s not the main source of income. That’s why you can trade cheaper with a Market Maker.
What you should note is that nobody likes to lose money. Especially market makers. This is where licenses and regulations come in handy. A fraudulent broker may simply cancel your position, refuse to pay you the outstanding balance and even avoid closing your positions. When you trade with a reputable and licensed market maker, this is never a case. Another advantage of market makers is that these brokerages offer excellent foreign exchange premium offers.
It is important to consider that even licensed market makers are not prone to losing money. This is why you will be placed in compensation if you make profits as a result. This will usually result in slow execution and terrible prices. Imagine what kind of conditions can provide a broker who does not have a developed infrastructure? Therefore, once you see that your trading conditions have changed drastically, switch to another broker.
Don’t be afraid of market makers. These are the brokers who expect you to lose, not make you lose. In exchange for their expectations, they have much more to offer than a regular A-book broker. On top of that, with the current market situation, a market maker even seems to be a more reliable option than an agency broker.
The article is contributed by Nick from Forex Bonus Lab, a blog dedicated to reviews of the best forex bonus offers and the best forex brokers.