And so high leverage, while useful under certain circumstances for professional traders, is typically a trap instead of a benefit. It enhances your profits while simultaneously enhancing your risk. A big question regarding B-book models is why financial regulators allow them to operate at all. One could argue that it’s not the broker’s responsibility to educate their clients on how to trade. We all make our own decisions, and it’s our own responsibility to inform ourselves and educate ourselves on the risks we take. But in any case – even if you don’t have access to high leverage, if your broker profits from your losses, then they have no incentive to help you educate yourself and get better at trading.

Such a broker will benefit if the trader increases trading volume and turnover, as the commission charged by the broker will also increase. This article deals with different types of order processing models. I will explain A-Book and B-Book models, the difference between them, and why the B-Book is not always bad. You will also learn the difference between DD and NDD brokers and get acquainted with NDD order processing sub- types – STP, ECN, DMA, and MTF. If you hedge risks and use a hybrid model and a bridge, you probably need to control trading activity especially in an important market news period to control financial risk.

Why Do Forex Brokers B-Book?

Therefore, today the pure STP model is rare, although some brokers continue to focus on it. Differently put, a Price Giver places an order in the interbank market indicating the purchase volume in lots and the price at which it is ready to buy/sell the asset. The order enters the Depth of Market, Price Taker accepts the most suitable order for it (at the best price and sufficient volume), entering into a deal with Price Giver. It is essential to understand the difference between different types of Forex brokers to succeed in trading.

They connect forex retail market participants with to liquidity providers. Brokers devised a hybrid model in order to overcome the limitations of the A-Book and B-Book methods. One of the most popular alternatives among major brokers is to use a hedging strategy. Using a hybrid approach, a broker processes minor transactions inside its platform, but big transactions may be withdrawn to a liquidity provider and ultimately to an interbank.

Starting Your Forex Trading Journey

To avoid the shortcomings of the A-Book and B-Book schemes, brokers came up with a hybrid model. Hybrid model means that the broker executes small transactions within its platform, while large transactions can be withdrawn to the liquidity provider and then to the interbank. I think it would make better sense to allow retail traders to access high leverage, but only after they’ve proved through some kind of test or survey or probation period that they thoroughly understand the risks and traps that the use of high leverage can create. Whereas an A-book broker is a business that offers their services to professional traders. It’s an extremely tough business for a retail forex broker to operate as 100% A-Book. 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.

By doing their due diligence and choosing a reputable broker, traders can help to protect themselves from the risks posed by b book brokers and other fraudulent entities in the forex market. An A book is also known as a straight-through processing (STP) book. This type of book is used by forex brokers to route their clients’ trades directly to liquidity providers. Liquidity providers can be banks, financial institutions, or other brokers.

Understanding the Forex Brokerage Business Models – A-Book, B-Book, and Hybrid

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. The advantage of the ECN model compared to the STP is the number of participants (both traders and liquidity providers).

• Ultimately, the broker adopted the UpTrader withdrawal control system.
• Brokers “B-Book” trades because it’s usually more profitable for them.
• We are going to discover the difference between A book and B book broker models.
• All you have to do is sit back., relax…and WAIT for your customers to lose, then watch your profits start rolling in.

You can set up this rule for all requests or only for those that are already approved by lower-ranking staff. It is very important to verify your client with a KYC check, confirm payment details, to do this just direct all requests through a Compliance department. In some cases you might need requests approved by a phone call, so that you are sure that requests are submitted by a real client, not a scammer, so you can set up obligatory manager calls. Every day, market experts collect information, prepare materials, and publish technical and fundamental market analysis used by thousands of traders around the world. I hope you found this article interesting – if you want to learn more about how brokers make money, make sure to watch this entire YouTube series.

You won’t be paying more to use an A-book broker than a B-book broker. This is not true if you’re trading against other traders – ie. But I don’t believe high leverage itself is responsible for most retail trader what is a book vs b book implosions. Rather it is the lack of understanding of how dangerous leverage can be. Many retail traders, especially those new to trading, typically have no idea what good “risk management” looks like.

There are several flaws in this scheme, which are easier to show with examples. Whichever model you work with, be it A-book or B-book broker, each has its advantages and disadvantages both for the broker and the traders. It is because there is no conflict of interest that this model is gaining popularity. In addition, traders know that such brokers are interested in having profitable traders because they increase these brokers’ turnover and, therefore, profits.

But ECN/STP brokers cannot be called pure ECN brokers, since they do not give the trader information about the Depth of Market (its liquidity). To understand which broker you are working with, you need to place a Limit order and it should be displayed in the Depth of Market. The Depth of Market is a tool reflecting the information on orders placed by sellers and buyers at the current time.

Before I get into the topic of identifying a broker’s type let’s talk about the advantages and disadvantages of each type. There are trade analysis software out there which can predict whether a trader is worth B booking. At the institutional level, funds such as CTAs obviously do not tend to use tertiary platforms due to the need to protect their code, although at the retail level, it is more appropriate. The only long-term methodology to beat the markets is to implement an algorithmic momentum strategy that extracts inefficiencies from the market simply by the existence of volatility, regardless of whether it is bearish or bullish.

B-book brokers profit from the losses of their clients, and they lose money when their B-book clients win. When placing a trade via a B-Book broker, they fill your trade in house. So, a B-Book forex broker can be best described as a market maker who is responsible for always providing execution and paying the differences (losses or profits) to their clients. Both traders and brokers have disadvantages when using the A-Book approach.

Traders, in turn, do not really understand all these models, preferring more favorable conditions, thereby encouraging the activity of such kitchens. The B-book brokerage model also has a number of undeniable advantages, which are as follows. To avoid these problems and make withdrawals without risks for a broker and fast for a client, it is better to follow a certain procedure, where every step is under control of your departments. Your Forex CRM must have flexible settings of an approval withdrawal system. If you think that a trading terminal, fast fund withdrawal, and copy trading services are enough to keep your clients loyal and satisfied, then you may not know your clients very well or have never tried to offer them something else.

The best solution: implementing an algorithmic momentum strategy in brokers that guarantee you A-book execution

These models are only tools for doing business, and the extent to which you gain personally from them is solely dependent on your ability to apply them in a professional manner. One of the first things that should raise a HUGE red flag is if some random person on the net (that what we,the millennials,call The Internet, grandpa) hits you up and offers to double, triple, quadruple your money in a week,month or so. You just have to transfer funds to a broker that he’ll give you and he’ll tell you what to trade and when. Clearly you can understand why a broker would choose to B book their clients. Instead, your broker bets against you, taking the other side of the trade. Even if I am not an introducing broker, in the OTC derivatives arena (mainly CFDs) brokers like Global Prime, CMC, IG, Tradeview, or Saxo can guarantee you a quality A-book if you have a winning algorithmic strategy.

The broker will make money from the spread, which is the difference between the bid and ask price. The spread is wider than the A book, which means that traders will pay more for their trades. The B book is beneficial to brokers as they can make more money from their clients. However, it is not as beneficial to traders as they may not get the best https://www.xcritical.in/ possible price for their trades. If you are executing a long-term winning strategy, choosing a broker or exchange that 100% executes your trades in the A-book and connects you to quality external liquidity is crucial. That way, you avoid being a winning trader in the B-book, which is the biggest fear of all brokers in financial derivatives.