In the world of forex trading, understanding the role of brokers and how they operate is essential for both novice and experienced traders. One commonly asked question is whether a broker acts as a market maker. In this article, we will explore whether XM, a popular forex and CFD broker, functions as a market maker, delving into how its structure affects trading conditions, user experience, and the overall market environment.
Introduction to Market Makers in Forex
A market maker is a type of broker that provides liquidity to the financial markets by both buying and selling assets. In essence, market makers create a market by setting bid and ask prices for traders, ensuring that there is always a buyer or seller available. The spread between these two prices is where market makers earn their profit. By doing so, they ensure market fluidity, particularly in less liquid markets.
Market makers often hold positions against their clients’ trades, meaning they can benefit from their clients’ losses, a point that has raised concerns among traders about potential conflicts of interest. However, many market makers, including reputable ones, adhere to strict regulatory frameworks to ensure transparency and fairness in their operations.
XM's Broker Model: Hybrid Structure
XM operates with a hybrid broker model, which means it acts as both a market maker and an intermediary with external liquidity providers. This hybrid approach allows the broker to offer flexibility, particularly for clients with smaller accounts or those trading lower volumes. For such accounts, XM often operates as a market maker to ensure liquidity and fast execution.
For higher-volume traders and professional accounts, XM typically functions as a non-dealing desk (NDD) broker, passing trades directly to external liquidity providers without holding positions against the trader. This structure ensures that professional traders can access tighter spreads and deeper liquidity.
According to ForexBrokers.com, XM’s dual approach enables the platform to cater to a wide range of traders, from beginners to professionals, offering both fixed and variable spreads based on market conditions and account types.
Key Features of XM’s Trading Model
1. Execution Speed and Liquidity Provision
One of the advantages of XM’s market maker structure for small traders is its ability to provide consistent liquidity and fast execution. By acting as a counterparty to smaller trades, XM ensures that traders can execute orders quickly, even during volatile market conditions.
Data from Finance Magnates shows that XM executes 99.35% of trades within one second, which highlights the efficiency of its system. This rapid execution is particularly beneficial for day traders and scalpers who rely on fast order fulfillment to maximize profit opportunities.
2. Account Types and Spread Options
XM offers various account types, each with different spread structures. For micro and standard accounts, XM acts primarily as a market maker. These accounts typically feature slightly wider spreads but are commission-free. Professional accounts, such as the XM Zero account, provide access to raw spreads, starting as low as 0 pips, but with a small commission per trade.
By offering these options, XM ensures that traders can choose the account type that best suits their trading style. Beginners may prefer the simplicity of commission-free accounts with fixed spreads, while experienced traders can opt for raw spreads with lower overall trading costs.
3. No Requotes and Transparency
One of XM’s standout features is its commitment to transparency. As a market maker, XM guarantees that there are no requotes, even during periods of high market volatility. Requotes occur when a broker changes the price of an asset before a trader’s order is executed, often due to rapid market movement. XM eliminates this practice, ensuring that traders get the price they see.
This policy, combined with negative balance protection, has earned XM positive feedback from its user base. A survey conducted by ForexLive indicated that 87% of XM users felt the platform was fair and transparent in its dealings, a strong endorsement in an industry where broker integrity is crucial.
Industry Trends: Market Makers vs. ECN Brokers
There has long been debate in the forex community about the merits of market maker brokers versus Electronic Communication Network (ECN) brokers. ECN brokers pass orders directly to liquidity providers, acting only as intermediaries, while market makers take the opposite side of a client’s trade.
In recent years, there has been a shift towards ECN brokers, particularly among professional traders, due to the perceived transparency and lack of conflict of interest. However, market makers like XM remain popular, particularly with beginner traders, due to their ability to provide instant liquidity, fixed spreads, and simplified pricing structures.
A report by Investopedia highlights that market maker brokers accounted for over 65% of retail forex trading accounts globally in 2023. This statistic underscores the ongoing relevance of market makers, particularly for traders who prioritize fast execution and ease of use over the ultra-tight spreads often offered by ECN brokers.
User Feedback and Reviews
User feedback on XM’s market maker model has been generally positive. Traders appreciate the platform’s efficiency, execution speed, and commitment to transparency. Many novice traders find XM’s market maker model beneficial, as it offers simplicity and predictable trading costs, especially with fixed spread accounts.
One user shared on Trustpilot that they chose XM specifically because it offers fixed spreads and no commission on their standard account. The absence of requotes and the guarantee of price certainty were major factors in their decision to trade with XM.
However, more experienced traders have noted that for larger accounts, the spreads offered under XM’s market maker model can be slightly wider than those available through ECN brokers. These traders often prefer XM’s Zero account, which provides direct access to liquidity providers with raw spreads and minimal commission.
Conclusion: Is XM a Market Maker?
In conclusion, XM operates both as a market maker and a non-dealing desk broker, depending on the account type and trading volume. For smaller traders and beginners, XM acts as a market maker, providing liquidity, fast execution, and fixed spreads without commissions. For professional traders, XM offers the option to trade with raw spreads through its Zero account, functioning as an intermediary between traders and liquidity providers.
XM’s hybrid approach allows it to cater to a wide range of traders while maintaining transparency, fast execution, and no requotes. As the forex industry continues to evolve, XM remains a popular choice for traders seeking both simplicity and competitive pricing.
