B-Book: How Forex Brokers Manage Their Risk

It’s hard to make a lot of money and with margins so tight, it’s not surprising why brokers running a B-Book as an additional source of revenue. Most new retail traders have no trading experience and it’s not uncommon for 80-90% of them to lose their entire deposit within 12 months. Between 74-89% of retail accounts lose money when trading forex.

It’s likely that the forex broker won’t try to trade against you if you are a consistently profitable trader. Therefore, your orders will often be delivered to the interbank market. Consider yourself in a position where you constantly trade 5 lots of a commodity CFD and make hundreds of dollars per deal. At the trading stations of the dealing desks run by the retail forex brokers, these orders are all automatically filled. We must comprehend the meanings of the terms “A-book” and “B-book”.

B-Book Order Execution Example #1: Broker Wins

I’ve been reading through all your inputs above differentiating A/B book brokers. I have to first say you’re really doing a wonderful job here, and it is really kind of you. Well, if your Forex broker purely B books you, without giving you slippage, then it is actually good for you! You can deploy strategies that won’t work on A book brokers such as news trading.

They have the option to fill the trades internally (B-Book model) or pass them through to the market (A-Book). If the broker chooses to keep their clients’ order internally by using the B book execution model, they need to pay for the winning trades of their clients but they also make a profit when a trader is losing money. When a risk manager has correctly singled out and hedged the profitable clients, another challenge is to make sure that liquidity providers do not cut off flows of these traders as toxic.

A-book vs B-book execution: the dark side of the online trading industry.

The difference is that the ECN is a virtual network where orders of all market participants are aggregated, sorted and executed. DMA is similar to STP, where traders’ orders are distributed among liquidity providers. The A-Book hybrid forex broker model is one of the most common ways of technological support for trades execution employed by large brokerage companies. ECN/STP brokers are the brokers that combine both models without prioritization, focusing on the speed of finding a matching trade. DD brokers, market makers, Dealing Desk brokers – all these mean the same counterparty, which takes the other side of the client’s trade, executing almost all the trades with its internal system.

Forex is different from equities or futures trading because your broker can choose to trade against you. When your broker sends all your trades to the real market or their liquidity providers, this is known as A Booking. Statistically, the profit of an A-Book forex broker is less, but more stable. It is well known that 80-95% of traders lose their initial deposit within 6 months, which plays into the hands of the Forex B-book broker. But don’t forget about unforeseen circumstances that regularly occur and make B-book brokers suffer huge losses, often for many months in a row. The A-Book model is a fundamentally different model of work in which there is no conflict of interest between the trader and the company.

B-Book Order Execution Example #2: Broker Loses

Instead, your broker bets against you, taking the other side of the trade. In futures or equities trading, all your trades are sent to the exchange and matched with other buyers or sellers. ECN brokers encourage high-frequency trading strategies and can provide their server capacities for algo trading. Compared with the volumes of interbank transactions, the internal volumes on the broker’s platform are too small. Have you ever thought about how Forex trades are executed? You only need to click on the button to open an order, and a confirmation of the transaction appears on the screen.

They may not be suitable for everyone, so please ensure that you fully understand the risks involved. I would have to look through the legal documents on ic markets website, to look for any disclosures if there any conflicts of interest, or that it states if ic markets are able take positions against clients. You would be better off trading with A book brokers like Global prime.

TickTrader Trading Platform as a MetaTrader Alternative

It allowed the company to maintain a trusting relationship with their clients and to ensure the safety of their funds. We conclude that none of the schemes can be a panacea for losses. You must decide which business model to choose for you, depending on your business plans and strategies.

A market maker is often a synonym for the B-Book Forex broker. 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. B-book brokers profit from the losses of their clients, and they lose money when their B-book clients win. 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. This includes very competitive spreads , fast execution, and the ability to get an execution on all instruments .