Make a market: broker and dealer quoting explained
By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.
Quick answer
To make a market is to post a firm two-way quote, a bid and an offer, and commit to transact at those prices on either side. Market makers stand ready to buy at the bid or sell at the offer, earning the spread while warehousing or hedging the resulting position.
What is make a market?
Making a market is the act of quoting a firm bid and offer simultaneously and standing ready to deal on either side, regardless of which way the counterparty trades. In foreign exchange, equity options, bonds, and CFDs, market makers provide continuous two-way prices during defined hours. The quote is binding up to a stated size. The market maker profits from the bid offer spread but assumes inventory risk: if flow is one sided, the position must be hedged in the wider interbank or futures market. This contrasts with agency execution, where the broker simply passes a client order to an external venue without taking the other side.
How traders use make a market
Retail traders rarely make markets themselves, but they trade against market makers constantly. Understanding the mechanic clarifies why spreads widen around news, why stop hunts cluster near round numbers, and why fill quality differs between a dealing-desk broker and a straight-through-processing venue. Institutional desks at banks such as JPMorgan, Citi, and Deutsche Bank make markets in spot FX for corporate and asset manager clients, internalising flow where possible and laying off residual risk into ECNs like EBS or Refinitiv. Retail brokers operating a B-book model effectively make markets in CFDs, while A-book brokers pass risk to liquidity providers. Reading a broker’s execution disclosure reveals which model applies and how conflicts of interest are managed.
Common misconceptions about making a market
A frequent error is assuming a market maker always wants price to move against the client. In practice, professional market makers prefer balanced two-way flow because it lets them earn the spread repeatedly without directional exposure. Another misconception is that all retail brokers are market makers in the predatory sense. Many run hybrid books, internalising small retail tickets and routing larger or more informed flow to external venues. Finally, making a market is not the same as being a liquidity provider on an ECN, where multiple participants post competing quotes anonymously rather than a single dealer standing on both sides.
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Frequently asked
Is making a market the same as being a broker?
No. A broker can operate as an agent, routing client orders to external venues for a commission, or as a principal market maker, taking the other side of client trades. Many retail brokers blend both models, internalising some flow and passing the rest through to liquidity providers. The distinction matters for execution quality, transparency, and potential conflicts of interest, and it is usually disclosed in the broker’s order execution policy.
Why do market makers widen spreads during news events?
Around scheduled releases like non-farm payrolls or central bank decisions, price uncertainty rises sharply and informed flow increases. Market makers widen the bid offer spread to compensate for the higher probability of being adversely selected, that is, trading with a counterparty who knows more about short-term direction. Wider spreads also discourage stale quote arbitrage when feeds briefly desynchronise. Once volatility normalises and order flow becomes two sided again, spreads typically compress back toward standard levels.
Do market makers always trade against their clients?
Not necessarily. A market maker takes the opposite side of a client order at the moment of execution, but the resulting position is rarely held in pure opposition to the client. The dealer may internalise the trade against another client’s opposing order, hedge it externally in the interbank market, or warehouse it briefly within risk limits. The objective is usually to earn the spread on flow, not to bet against any individual trader.
How can retail traders tell if their broker makes a market?
Check the broker’s regulatory disclosures and execution policy. Terms like dealing desk, principal execution, or B-book indicate market making. References to STP, ECN, agency execution, or A-book suggest order routing to external venues. Account types also vary within the same broker: standard accounts often run through a dealing desk, while raw-spread or commission-based accounts typically route directly to liquidity providers. The execution model affects spread structure, slippage behaviour, and potential conflicts.
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