Blog - En Güncel Haberler

A-Book Brokers VS B-Book Brokers

I would recommend trying both models and choosing the one most suitable for your trading style and trading system. 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. Dealing Desk brokers what is a book vs b book create a market for the client, serving as market makers. A Dealing Desk can change the leverage, spread, affect the accuracy of the quotes, artificially increase slippage, manipulate client’s orders. This is not true if you’re trading against other traders – ie. Directly to the underlying market through an A-book broker.

It’s good that ASIC have forced these B-book brokers to reduce these shady practices which have exploited ignorant retail traders for the past few decades. 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 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 Using a hybrid approach, a broker processes minor transactions inside its platform, but big transactions may be withdrawn to a liquidity provider and ultimately to an interbank.

On the other hand, traders do not receive the best price because of the mark-up added to the spread. Another problem is that the quality of the services offered by liquidity providers is deteriorating over time. The order execution quality lowers, there emerge slippages. However, B book brokers today will simulate your fill against the real market, and B book you. 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. I know I know… I was as shocked as you when I first learned how the inner workings of the brokerage industry operate.

a-book vs b-book brokers In forex trading

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. At the end of the day, what matters is whether your strategy is algorithmic and winning over the long term so that you are in the A-book. If you trade with a professional and profitable strategy, you will be connected to the highest quality liquidity and not be a simple suction tool for the quant market makers. 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.

Why Do Forex Brokers B-Book?

You can learn more about trading conditions provided for both types of trading accounts here. ECN specification is here, Classic account specification is here. The Depth of Market is a tool reflecting the information on orders placed by sellers and buyers at the current time. The trader sees prices and volumes of orders, which suggest a kind of market sentiment. The Depth of Market of level 1 displays the data on the best prices.

a-book vs b-book brokers In forex trading

Imagine you want to buy some USDJPY, your broker places the order with the bank, the bank then digs into their vault and fills your order. In the not too distant future, anything other than algorithmic trading will increasingly resemble the betting industry rather than financial markets. In fact, at the retail level, that era is probably already here. 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.

Top 10 Trading & Market Structure Reads

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. What this creates is an atmosphere and culture of seeing your clients as prey rather than customers. Brokers appeared with the emergence of the stock exchange, the place where buying and selling of securities occurs. From the origins to modern understanding, exchange funds have passed a long stage of evolution and modernization, changing the principles of operation and covering all large economic and financial processes.

There are two types of broker operation modes, A-Book and B-Book models. These models transfer the client orders to the interbank forex market in entirely different ways. The irony of this is if you are trading with a B-book broker then it is a zero-sum game, since they are literally trading against you no matter what time frame or market you’re trading on. But high leverage is usually used by traders who are inexperienced anyway.

If a B-book broker offers high leverage, it’s usually because they want you to blow your account – because they want your money. You can see here how the misalignment of incentives can be a problem. But they still profit from the destruction of their own clients. 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. 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.

How much is traded in the forex market daily?

Next, the application went to the compliance department, which may find that the client has not fully completed KYC and that they need to finish the process (the client corrects errors and resubmits the request, and it follows along the same path). Then the application went to the finance department, which once again verified the numbers. And finally, the secretary manually collected problematic requests and took them to the CEO for final approval. Neither A-Book nor B-Book model guarantees a successful business or a profitable trade. These models are just tools for doing business, and your personal benefit depends only on how professional you can use these tools. There are two types of broker operating technologies – A-Book and B-Book models, which differ in the way client orders are brought to the market.

  • Milena Moon is the head of media projects in the marketing department of the B2Broker Group.
  • They have the OPTION to fill the trades internally (B-Book) or pass them through to the market (A-Book).
  • You can deploy strategies that won’t work on A book brokers such as news trading.
  • We are going to discover the difference between A book and B book broker models.
  • Have you ever had to deal with the forex A-book/B-book models when studying the brokerage industry?
  • The order execution quality lowers, there emerge slippages.

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. As a trader, it’s not about labeling one model as good and the other as bad, but rather understanding which model aligns with your trading strategy. It’s about focusing on the price and execution quality you receive from your broker. 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.

DMA is similar to STP, where traders’ orders are distributed among liquidity providers. Each broker can work with an unlimited number of aggregators and liquidity providers. The terms of the partnership will depend on the order execution speed, spread, and commission. There are several flaws in this scheme, which are easier to show with examples.

a-book vs b-book brokers In forex trading

This strategy suggests that the moment the broker receives a trade from their client, the broker will enter into another trade with a counterparty in the same direction as their client. Profitability is one of the factors that allows you to understand the difference between a book and b book broker. 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.

At the same time, the number of errors in calculations decreased significantly. As an additional bonus, the broker was able to take a closer look at the terms of affiliate programs and, in some cases, it became obvious that it was extremely unprofitable for them to continue working under the conditions they previously set themselves. The broker removed all unprofitable programs, freed up a lot of resources, and significantly increased their income from affiliate programs. Thus, one request could take 5 days, 10 days, or two weeks to get approved. Not only did this situation take up a lot of time and resources, it still did not prevent the company from making mistakes.

An A-Book broker operates on what’s called a ‘no dealing desk‘ model. This means that when you place an order to trade a currency pair, say GBP/USD, the broker sends your order to a liquidity provider, like a bank. This liquidity provider matches your trade with an opposite side trade.

In this article, we’ve explored the basic mechanics of risk management models that brokers choose for hedging purposes. While we’ve covered the most common methods used by brokers, it’s essential to realize that each broker is different and that many may adopt unique practices which suit their type of risk management and more importantly, their risk appetite. 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. Now even the most complex requests take 1-2 days to approve.