What types of forex brokers exist? What is the difference between A-Book and B-Book brokers?

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November 26, 2021

What types of forex brokers exist? What is the difference between A-Book and B-Book brokers?

During their discussion on how forex brokers make money, co-founder of Global Prime Jeremy Kinstlinger quotes an interesting ASIC report. In essence a B-book broker simulates the real markets and your trade fills are based on the underlying market, but your trades are never actually sent there. If your trades are being filled quickly during a news release, then it’s a safe bet you’re on B-Book. Traditionally liquidity dries up during times of high volatility, so it’s harder to find a counterparty (bank) to fill your trade.

a-book vs b-book brokers In forex trading

MTG Liquidity Limited will not open accounts or effect transactions for U.S. persons residents of certain jurisdictions including Iran, Canada and Japan. That becomes even more noticeable when someone trades financial derivatives on exotic currency pairs such as the USDNOK or EURZAR. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. It’s important to ensure your A-Book Versus B-Book Brokers provide complimentary resources such as analysis, education, and risk management tools.

At the beginning of 2022, we have an industry full of technology providers and different solutions. Yet, at first, brokers did not have so many options to chose from. Initially, brokers, whether they wanted it or not, were organizing their operational side of the business according to a model which today is often referred to as ‘B-Book’(or market-making) all alone. The good news is that none of this is relevant when trading with a purely A book broker. Liquidity providers like the balanced flow of an A book broker and they are much less likely to reject your trades.

In other words, this means that you are speculating the opening and closing prices in a CFD trade versus another trader or, usually, versus the CFD provider. The Good Money Guide is a UK-based guide to trading, investment and currency accounts. We offer expert reviews, comparison, news,  analysis, interviews and guides so you can choose the best provider for your needs. A “b” book operator would be in exactly the same positon, but will have avoided the costs in executing the underlying two trades.

Essentially, a B-book broker is a casino, and they want clients who are gamblers, not traders – and if their clients happen to ruin themselves financially, they could care less. The problem for us as traders and clients of their services is the conflict of interest this B-book model creates. In order to transfer its market risk, the broker makes a similar but completely separate trade with the liquidity provider. When the retail forex broker takes the opposite of a customer’s trade, it can choose to ACCEPT the market risk or TRANSFER it to another market participant.

Many traders are starting to doubt this type of forex brokers. The primary concern is that these brokers could potentially take advantage of your trading history and pattern and thus make a profit off you. A Book in forex is defined as a type of execution model that is STP or Straight Through Processing. You might have come across forex brokers who call themselves, STP broker, or an ECN broker or a non-dealing desk broker. In some instances, such brokers typically use what is known as a dark pool to mask the true identities of where the orders are being fulfilled. To understand the difference between the so-called A-book and B-book forex brokers, we have to understand what the concepts of the A-book and B-book are.

When traders are making money, brokers are losing and vice versa. It is why many experts have claimed that B-book brokers profile their clients to lose money. One of the major advantages of using these brokers is that trades will always enjoy great execution orders even when there seems to be low liquidity. It is because the broker is playing the role of a market maker. Whether you are trading during market hours or off-peak periods, there is always the possibility that the spread is fixed.

a-book vs b-book brokers In forex trading

I strive to foster understanding, inspire confidence, and catalyze growth in these dynamic sectors, contributing to the forward momentum of our digital financial future. Global Prime – $5.50 discounted commissions instead of $7 per rt. This does not increase the cost to you for using a broker and is how the site is funded and covers the costs of running this website. Consumers are protected by A-Book Versus B-Book Brokers regulation, critical to preventing inadequate services and potential financial harm. Lowering your risk is one of the benefits of working with a properly regulated A-Book Versus B-Book Brokers. Regulated A-Book Versus B-Book Brokers lowers your risk of loss of deposited trading funds.

  • Traders who have small deposits but trade with high leverage are riskier and therefore such trades see B book execution.
  • So long as that is the case, they will continue to find new ways to “encourage” their clients to lose money and remain uneducated about the proper ways to trade and manage risk.
  • The ECN is a kind of platform where everyone places Bid/Ask orders that affect the market liquidity.
  • Therefore, there are no conflicts of interest, these brokers earn the same amount of money with both winning and losing traders.

The broker replicated its customer’s trade with an LP in the institutional FX market. According to the broker’s risk management policy, this amount of what is a book vs b book market exposure exceeds the broker’s risk limit so it needs to offload the risk. Let’s see a trade example of how a broker would offload its risk.

This scenario involves a broker trading against his customers. The broker does not use an external liquidity pool to carry out deals; instead, the business serves as a counterparty to the trader’s transactions. https://www.xcritical.in/ Essentially, a broker will sell to a trader who makes a buy order and vice versa. It is apparent that this kind of approach leads to conflicts of interest between B-Book brokers and their customers.

This means they don’t play tricks on you, such as slippages, requotes, or delay your trade execution times. A broker always, no matter what the model, wants scale; the more trades the better, whether they are long or short. In the instant that a client buys £/$, another client may, seconds later, chooses to sell £/$. I think the industry understands the various models pretty well, but clients, and sometimes regulators deem one way to be superior, and the other to be less desirable.

Thus, the A-Book approach implies that orders are sent directly to the interbank market, where these orders are filled by liquidity providers. A-Book brokers profit by raising the spread or collecting fees based on the number of orders placed. Due to the fact that they profit the same amount from successful as well as unsuccessful traders, and there are no conflicts of interest. They do not take many risks, yet they may make less revenue since they solely gain on margins/commissions. That said, this concept acts as a go-between for the investor and markets. By interacting with an A-Book FX broker, the trader avoids both the market maker and their trading desk.

But if you are in a timezone such as the European trading session which is very active, trading with an A book broker is more ideal. This is because you are most likely to get the best possible spreads due to higher liquidity. The trader’s profit depends on the spread (its size or type – fixed or variable), order execution speed, and the reliability of the broker. The quotes in the interbank market change in milliseconds the price at which the order will be executed depends on how quickly the trade is transferred to the market. Therefore, the broker is forced to use software to track such tricks of the provider.


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