This can also be called straight-through processing (STP) broker. The terminal of a trader is directly connected to a liquidity provider. Some people will say that this execution model generates conflicts between the client and the broker, however, there are some advantages to trading via B book brokers.

Essentially the broker takes the other side of the trade, at least for a period of time. For that purpose, there are two types of brokers, A Book broker, and B Book broker. However, almost every broker in the world is sort of a combination of A-Book and B-Book. As a hard-working, goal-oriented, and well-rounded person, I always strive to do quality work for every job I do. Faced with challenging tasks in life, I have developed the habit of thinking rationally and creatively to solve problems, which not only helps me develop as a person, but also as a professional. Speaking about my professional activities, I can say that I have always been attracted to the study of foreign languages, which later led me to the study of translation and linguistics.

Forex Market Analysis: Fundamental vs. Technical Analysis

They want to see you become profitable – because they want you to trade bigger, longer, and consistently, so that they make more money from the fees they charge you. This is really the main reason why you should care if your broker is a B-book or A-book broker. The same situation occurs if you trade large volumes of say, 100 lots. A trade size of 100 lots is worth $10m trade value on the EURUSD, with a monetary value per pip of $1000. If you make 200 pips a month as total profit, you walk away with $200,000!

a-book vs b-book brokers In forex trading

For the market makers who routinely fulfil orders in-house using a dealing desk, the only motivation to perform A-book fulfilment transactions is simply to prevent risk to their positions. Market makers routinely take the opposite sides of their clients’ positions. Statistics have shown that 95% of retail traders lose money in forex, so this makes the counterparty operations of the market makers very profitable.

Market Makers in Forex. How do you trade like a market maker?

If you are trading through a B-book trader and your account goes into the negative, it really means nothing. The broker hasn’t lost any money, because they never sent your trades to a third-party. They can simply reset your account balance to zero if they want to, and because they don’t owe anyone any money on your behalf, it’s basically a fake debt.

This means that your trade is filled as if it were to be trading on an A book (with slippage), but instead of sending your trades out to their liquidity providers, they keep your trades in house. To efficiently identify profitable traders, as well as unprofitable ones, forex brokers have software that analyses their clients’ orders. However, many forex brokers use a hybrid model which uses a B Book for clients who lose money and an A Book for the profitable clients.

B-Book Forex Broker

The first thing you need to know about B-book brokers is that they are operating under a popular concept. It is due to how they decide to trade against their clients. In this case, the trader is not linked directly to any liquidity pool. Also, your broker will be selling to you anytime a buy order is placed.

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. You trade with banks and have a range of options with clear pricing. Software and access to the interbank market are provided by the broker. So long as brokers are allowed to directly profit from trading against their clients, there is a huge conflict of interest. Firms like SMB Capital are very open about the fact that their traders have daily risk limits, and if their risk limits are hit, then they are no longer allowed to trade and are forced to take a break.

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The banks at the interbank forex market do not take counterparty positions, so they will be happy to fulfil such positions as they come in. A-Book is a kind of FX execution model, referred to as a non-dealing desk broker or an STP (Straight Through Processing) broker. These brokers make money by charging commissions or by profiting from spreads. An A-Book broker works as a bridge that links a trader’s terminals to a liquidity provider, or LP. 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.

  • Both models are used by almost all forex brokers, if not all of them.
  • On the other hand, traders do not receive the best price because of the mark-up added to the spread.
  • Thus, the A-Book approach implies that orders are sent directly to the interbank market, where these orders are filled by liquidity providers.
  • Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and
    regulated by the Cyprus Securities and Exchange Commission.

Established in 2007, and in operation for 12 years
IC Markets
have a head office in Australia. Become profitable trader with a help of our great community. This A-Book transaction is what most people understand as the role of a traditional broker. In some cases, brokers can also add an additional mark up on the prices to make an extra buck. It creates the potential for the broker to do “bad” things to increase the chances that your trades lose.