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They source the deal, and in return, earn a commission. When placing a trade on the brokers B-Book, they fill your trade internally.
They take the risk with their own company capital. So when you win, they lose. I know I know… I was as shocked as you when I first learned how the inner workings of the brokerage industry operate. In my experience, big accounts are placed on A-Book due to the risk to the broker.
If you put the morality aside of brokers pretending to be white knights who hunt down the best liquidity in the world to deliver you spreads of 0. Click here to view a list of trustworthy brokers where we trade our own funds.
Do you have any experience managing risk within a broker? Please share your inside tips and experiences for the benefit of our community. Continue reading — Do forex brokers hunt your stop loss? Try Live Forex Trading Room now for just 7 days free and gain access to:. It is the price made by the broker normally wider than market.
This is not real price, it is synthetic price OTC. The practice is fine and is not illegal or wrong and is a good way for clients to trade quickly and cheaply. But what has happened is many brokers can make bad prices that cause the price of their own book to move adversely. Causing slips, skews, spikes, stop loss triggers, etc.
Lots and lots of people have lost the money. So the handling of the b-book is the issue here and causing these things is what the regulators are investigating. May 29, , 2: May 29, , 3: Clearly then this only applies to Market Makers as they are the ones who set the price via their Dealing desk. I mean a price is a price no matter who sets it ,however it becomes meaningless when the MM,s decide to muck about and people loose money. Jun 10, , Originally Posted by uShuan. AARasheed, thank you for explanation.
This B-booking term is completely new to me. This hybrid model can be extremely profitable, and is used by a significant number of brokerages. The popularity of the hybrid model is understandable as it allows brokerages to increase their overall profitability. It also allows brokerages to make money from traders who themselves are profitable by simply passing these trades onto various liquidity sources.
A key tool in a hybrid brokerages risk management is client classification, with brokerages placing certain traders on their A-book while others are placed onto the B-book. The majority of industry risk management software has the ability to determine how to classify traders, helping brokerages maximise their profits.
As the profits made from traders placed on the B-book can lead to the brokerage charging those on the A-book a smaller mark-up on the spreads they receive from liquidity providers.
Many brokerages place their clients trades onto different books depending on client and trade classification. The brokerage is essentially betting against those kept on their B-book, and brokerages which only operate a B-book should probably avoided. Many brokerages operate a hybrid model, and there is nothing inherently bad in such a model. Whether a social trading service is A-book or B-book depends on the service.
For instance services such as MyDigiTrade and ZuluTrade allow users to pick from a range of different brokerages. Some of these are A-book brokers and some of these are B-bookers, allowing you a choice.