Huu Hung Nguyen

IT Consultant

Project Manager

Web Developer

Google Workspace Lover

Huu Hung Nguyen

IT Consultant

Project Manager

Web Developer

Google Workspace Lover

Blog Post

A-book vs B-book execution pros and cons

Juni 9, 2024 FinTech

With narrower spreads and quicker execution, B-Book may draw customers, especially those using high-volume trading methods. B-book brokers, on the other hand, often inflate spreads and charge higher fees. When the liquidity pool dries up, chances are that you will be the one left holding the bag.

a book vs b book

Such a broker will benefit if the trader increases trading volume and turnover, as the commission charged by the broker will also increase. 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. 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. Market data shows that at least 70% of retail clients lose money, which is the official information that every regulated FX broker must provide when promoting their services. In addition, when clients lose their money, they leave, so the broker has to constantly bring in new ones to keep his business going, which can also be a challenge. Brokers working on the A-book model are less risky but also potentially less profitable because they earn only on margin and commissions.

What is a B book?

However, with A-Book brokers spreads can vary, even by a lot during periods of volatility, and slippage is more likely to occur. The second significant income source for B-Book brokers is the losses of their traders. Since a substantial percentage of retail Forex traders, between 74% and 89%, tend to lose money in the long run, these losses become the broker’s gains. In essence, when a trader’s position moves against them, the loss is effectively transferred to the broker’s account.

a book vs b book

B-Book brokers generate profits through a process called “internalization.” When a client places a trade, the broker takes the opposite position, effectively assuming the role of the counterparty. By doing so, B-Book brokers can profit from spreads, which often differ from the interbank rates. Additionally, B-Book brokers may benefit from client losses, as they do not pass these trades to the market. However, it is worth noting that reputable B-Book brokers prioritize fair and transparent practices, as any client losses should not be the result of manipulative tactics. Both traders and brokers have disadvantages when using the A-Book approach. In order to move customer orders to the external market, the broker must make agreements with a liquidity provider (or with many of them), secure licenses, and offer technical assistance to the liquidity provider.

B-Book brokers: DD (Dealing Desk) and MM (Market Maker) models

Another problem is that the quality of the services offered by liquidity providers is deteriorating over time. Ultimately, the hybrid model represents a thoughtful attempt to enhance the trading experience, offering a blend of transparency, cost efficiency, and execution reliability. For example, when a trader places a buy order for a particular currency pair, the B-Book broker will sell that currency pair to the trader from their own inventory. This means that the broker profits when their clients incur losses and vice versa. While this model allows for immediate trade execution and liquidity, it introduces a conflict of interest between the broker and the trader.

Despite that, there are still other sources of profits, including spreads like in the A-book model. Surely, processing risks in-house may create a conflict of interest between the broker and the trader, especially if the broker provides clients with unclear trading conditions. Addressing the limitations of the A-Book and B-Book models, the hybrid model emerged, favored by many established brokers.

A-Book Vs B-Book Brokers

There were numerous cases of bankruptcy after the SNB unpegged the franc from the euro. Therefore, today the pure STP model is rare, although some brokers continue to focus on it. Moreover, the A-Book and B-Book models utilize different technologies of order execution, depending on the sub-type, MM, NDD, STP, ECN, DMA, MTF. Forex trading involves significant risk of loss and is not suitable for all investors. Brokers appeared with the emergence of the stock exchange, the place where buying and selling of securities occurs.

  • Of course, in the books Daphne is supposed to have brown eyes yet the on screen casting is very different.
  • After considering your company objectives and strategies, you must pick which business model is best for you to implement.
  • There were numerous cases of bankruptcy after the SNB unpegged the franc from the euro.
  • If you prioritize obtaining the best possible prices, quick and efficient order execution, and the ability to trade with multiple liquidity providers, A-Book brokers can offer you the advantages you seek.
  • With spread markup instead, the broker adds a small extra charge to the spread, the difference between the buy and sell prices.
  • Furthermore, brokers assume significant market risk, as they take the opposite side of the traders’ positions.

They offer you a direct and reliable connection to the global forex market through STP (Straight Through Processing) or ECN (Electronic Communication Network) accounts. We come to the conclusion that none of the plans can be considered a cure for loss. After considering your company objectives and strategies, you must pick which business model is best for you to implement. A similar argument may be made for traders who choose their broker.

3. NDD + ECN + STP hybrid execution model

I’m now a client of Global Prime, and I do all of my trading through their platform. 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. Having a broker who profits when you profit is like having them as an ally instead of just a facilitator – or in most cases, an adversary. It explains why Oanda so many brokers have a terrible support system that can sometimes take days to respond and usually are about as helpful as throwing your computer out the window. But if you’re unaware that you’re gambling your money in a casino run by your broker – then that’s a problem of communication and education, and perhaps even an ethical problem.

a book vs b book

The number of short sellers has almost tripled in the past six months. The FX, Fintech, and cryptocurrency markets have been buzzing with action this past week, as usual. Stay in the loop and ahead of the game with a handpicked collection of top updates and stories. Explore BlockDAG’s ascent to a 1000% price increase and global dominance alongside the developments in Ethereum Classic and Notcoin’s market activities. Well, my fellow trader, it all comes down to your trading style, goals, and personal preferences. I started this blog in 2017 to document my journey as a trader, and this shift from Oanda to Global Prime is as much a part of that journey as becoming consistently profitable was.

On the other hand, if you’ve gathered a substantial war chest and are ready to conquer the markets with sizeable positions, a book broker might be your knight in shining armor. A book brokers are like the air traffic controllers of the trading world. As a trader, whether it is an A-book or a B-book, you really shouldn’t bother. Because a B-book will most often quote you fixed spreads, you need to figure out if the fixed spread is worth paying for. When we talk about the A and B books, the term, conflict of interest stands out quite instantly.

a book vs b book

DMA, or Direct Market Access, is a type of trade execution where brokers offer direct access to the interbank, enabling them to place trading orders with liquidity providers with the Depth of Market formation. This execution model combines the benefits of the ECN and STP models. The counterparty to the trade is a market maker, which tries to find a matching order from its other clients (if the trader wants to buy 1 lot, the broker looks for someone who will sell 1 lot).

The answer to this depends on what you are looking for as a trader. For example, if you were based in a time zone where your start of business day usually means that the rest of the world is sleeping, a B book forex broker that offers fixed spreads is a better Making A Cryptocurrency Wallet Online Programs solution. On the one hand, such a model encourages competition between liquidity providers, thus narrowing the spread and reducing the commission fees. On the other hand, traders do not receive the best price because of the mark-up added to the spread.

In this scheme of work, all client’s positions are transferred directly to the liquidity provider, and the broker earns only on commission or markup to the spread. In this case, there is no conflict of interest between the company and the client because the broker will receive the profit no matter whether the trader gains or loses in the market. But, certainly, the company is interested, first of all, in profitable traders because, in this case, a mutually advantageous collaboration between the company and the client will be long-term. Another advantage is the ability to offer lower transaction costs, appealing particularly to retail traders with smaller account balances.

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