A market maker is your counterparty. Regulation decides how that conflict is handled.
A market-making broker quotes its own bid and ask prices and takes the other side of client trades. It earns the spread, and on positions it keeps rather than hedges, client losses can become its revenue. That model is lawful in regulated markets, where firms must manage the conflict, check that their prices are fair and keep client money apart from their own.
The useful question is not "is it a market maker?" but "can I check its prices, read its conflicts policy and withdraw without obstruction?"
- How the model worksA-book, B-book and spread
- What regulators requireConflicts, fair prices, client money
- One number to look upShare of retail accounts losing money
- Warning signsAnd what to do about each
1. How a market-making broker handles your trade
- Internalised ("B-book")
- The firm keeps your position on its own book. Your loss is its gain and vice versa.
- Hedged ("A-book")
- The firm offsets your position with an external liquidity provider and keeps the spread or a mark-up.
- Mixed
- Many firms route some clients or positions one way and the rest the other. The account name will not tell you which; the execution policy may.
In the US, the National Futures Association describes a forex dealer member as a firm that acts, or offers to act, as counterparty to off-exchange foreign currency transactions with retail customers. Counterparty dealing is the regulated business, not an exception to it.
2. Obligations on regulated market makers
| Obligation | Rule rule text | What you can do with it |
|---|---|---|
| Manage and disclose conflicts | MiFID II Article 23: identify and prevent or manage conflicts; where arrangements are not enough, disclose the nature and sources in a durable medium before acting | Ask for the conflicts-of-interest summary |
| Check price fairness | Delegated Regulation 2017/565 Article 64(4): for OTC products, gather market data to check the fairness of the price proposed | Compare fills against an independent price feed |
| Disclose off-venue execution | Article 66(3)(e): say if orders are executed outside a trading venue and the consequences, such as counterparty risk | Understand that you carry credit risk on the firm itself |
| Protect client money | FCA CASS 7.13 segregation; ASIC RG 212 bars using retail derivative client money to hedge the licensee's own risk or as working capital | See segregated funds |
| Publish retail loss rates | FCA COBS 22.5.6R: risk warnings include the firm's own percentage of retail accounts that lost money, recalculated quarterly over the last 12 months | Compare the figure across UK-authorised firms |
3. One number you can look up today
UK-authorised CFD providers must show the percentage of their retail accounts that lose money in their risk warning. It is calculated by each provider over the previous 12 months and refreshed every three months. A firm with no retail CFD trades in the past year uses fixed wording instead. The figure describes the firm's retail client base, not your personal odds, but it is one of the few comparable outcome measures published by every UK provider.
4. Warning signs and responses
| Sign | Why it matters | Response |
|---|---|---|
| Requotes or rejections mostly on winning trades | Asymmetric execution is hard to reconcile with best execution and fair pricing duties | Keep a fill log and raise a written complaint |
| Fills far from other quotes at the same moment | Regulated firms must be able to show price fairness | Record a second price source with timestamps |
| An "account manager" urging bigger or opposite trades | Advice from your counterparty is a direct conflict | Stop following instructions; verify who employs the person |
| Withdrawal delayed until you pay a fee | Inconsistent with client-money protection | Stop depositing; see the KYC withdrawal table |
| No regulator to complain to | No one supervises the pricing | Check the contracting entity with the licence check |
5. Frequently asked questions
Is a market maker always betting against me?
It is structurally your counterparty on internalised positions. Regulation does not ban that; it requires the conflict to be managed and prices to be fair.
Is ECN better than a market maker?
Compare total cost, execution quality and the regulator of your contracting entity. See ECN for how to read the execution policy.
Sources and open items
- Directive 2014/65/EU: Article 23.
- Delegated Regulation (EU) 2017/565: Articles 64(4) and 66(3)(e).
- FCA COBS 22.5 and CASS 7.13.
- ASIC RG 212.
- NFA: Forex Dealer Members.