Market makers: the invisible architects of the financial market

In a world where every second can change the value of assets, market makers are at the helm, providing vital stability and liquidity in financial markets. These “invisible architects” play a key role, but what do we really know about them, and what is their role in the modern economy?

Who are the market makers: the market makers

Market makers are not just market participants; they are market makers. They are willing to buy an asset at a certain price (the buy price) and sell it at a slightly higher price (the sell price), thereby getting the market moving. These operations require significant capital and a deep understanding of the market, as market makers must constantly adapt to changes in order to offer competitive prices.

Why the market needs market makers: the lifeblood of the market

The liquidity that market makers provide is the cornerstone of financial markets. Without them, investors would find it difficult to find counterparties for trades, resulting in higher spreads and less efficient markets. Think of a market without market makers as a shop where buyers and sellers rarely meet. Market makers ensure that the “shop” is always open for business, ensuring smooth trading.

How Market Makers Make Money: The Art of the Spread

Market makers use spreads as their main source of income, while they constantly adapt their quotes to market conditions. This requires them not only to monitor global economic events, but also to use sophisticated algorithms to predict market movements. Their work resembles choreography, where every movement must be precisely coordinated to capitalise on small but frequent transactions.

Risks and Challenges for Market Makers: Balancing on the Edge

The work of a market maker is associated with high risks. Market volatility can lead to sudden price changes, which increases the risk of losses. Market makers must be able to manage these risks by using various hedging strategies and algorithmic trading to protect their positions. In addition, they face increasing competition from algorithmic traders and other market makers, which requires them to constantly innovate.

Market makers and cryptocurrencies: pioneers of a new era

In the cryptocurrency space, the role of market makers is particularly significant. They promote liquidity and stability in markets that are known for their volatility. Market makers provide price support for new and lesser-known cryptocurrencies, helping them find their place in the market. They also play an important role in reducing spreads and making cryptocurrency trading more accessible to a wide range of investors.

Top 10 market makers in the foreign exchange market

The foreign exchange market, also known as the Forex market, is dominated by both large banks and non-bank financial institutions that play the role of market makers. They provide liquidity to the market by allowing participants to transact in currencies at instantaneous rates. Let us consider the list of market makers on the FX market, consisting of large banks and financial institutions that traditionally hold leading positions in terms of trading volumes:

• JPMorgan Chase & Co. — An American multinational bank known for its significant activity in the foreign exchange market.
• Citigroup is a Global Bank that is a leader in foreign exchange transactions around the world.
• UBS AG is a Swiss multinational investment bank and financial company active in Forex trading.
• Deutsche Bank — A German bank with a significant presence in the foreign exchange market.
• Goldman Sachs is an American multinational investment bank engaged in high-level foreign exchange transactions.
• HSBC — One of the largest banking and financial services organisations in the world, known for its activity in the foreign exchange market.
• Barclays is a British multinational bank that is heavily involved in foreign exchange transactions.
• Morgan Stanley is an American multinational financial corporation actively involved in currency trading.
• Bank of America Merrill Lynch — The financial division of Bank of America, known for its Forex activities.
• Standard Chartered is a British multinational banking conglomerate that also plays a significant role in the foreign exchange market.

Conclusion

Market makers are a fundamental part of the financial system, ensuring its efficiency and stability. Their work requires a high level of knowledge, adaptation, and risk management. In the world of cryptocurrencies, their role is even more important, as they help to shape new markets and ensure their viability. Understanding the role of market makers provides a deeper look at the mechanisms behind the scenes of market activity and appreciates their contribution to the global economy.