Market makers versus price takers
Distinguish market makers from price takers and explain why both are needed.
Lesson path
Market Foundations + Forex Mechanics
How Prices Move
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Distinguish market makers from price takers and explain why both are needed.
Who posts the price, and who accepts it?
A market maker is a participant that posts prices where others can buy or sell. They often quote both sides: a bid where they are willing to buy and an ask where they are willing to sell. Their job is not charity. They try to earn the spread while managing the risk of holding inventory. Inventory just means the position they end up with after filling other people's trades.
A price taker accepts a price that is already available. If you click buy at market, you are usually taking the ask. If you click sell at market, you are usually taking the bid. You get speed, but you give up some control. This is why the spread matters. The moment you enter, you may start slightly negative because you paid the difference between the buying and selling price.
Both roles are needed. Without market makers, it would be harder to find someone on the other side of your trade. Without price takers, quoted prices would sit there with no trades happening. For a beginner with a $500 account, the practical point is simple: do not treat execution as free. Spreads, slippage, and order type all matter. A clean idea can still become a poor trade if you enter during bad liquidity or chase with a market order when the spread is wide.
Knowledge check
Answer before moving on.
1. What does a market maker usually do?
2. If you click buy at market, what are you usually doing?
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