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The A Book - used by ECN / STP forex brokers

All ECN/STP brokers uses an A Book model, they act as an intermediaries who sends their client’s trading orders to liquidity providers or MTFs (multilateral trading facilities). These forex brokers makes so much money by just increasing spreads or charging commissions on bunch of orders. Therefore, without conflicts of interest, these brokers can earn the same amount of money with winning & losing traders.

The B Book - used by Market Maker brokers

Forex brokers who uses B Book models always keep their client’s orders internally rather than they take other side of client’s trades i.e. the broker’s profits is often equals to client’s losses. By using risk management strategies (internal hedging, spread variation etc.), brokerage firms can able to manage the risk associated with holding of B Book. use of B Book model is very profitable for brokers because most of the retail trader loses their money while trading.

execution model

The hybrid model - A Book + B Book

Hybrid model is so popular in brokers because it allows them to maximise their profit as well as credibility. It also helps brokers to earn more money by dispatching trading orders to liquidity providers like A book model.

Forex brokers are having software program that helps them to analyse client’s order, identify profitable traders as well as unprofitable ones. They can easily apply filters on traders, according to the amount of their deposits, risk taken per trade, leverage used, proactive stops and more.

Hybrid model is not always a bad thing for traders because profit made from traders, which placed in B book enable brokers so they need to provide all their clients the competitive spreads whether they are profitable or not. The biggest drawbacks of this system is if the hybrid broker cannot be able to manage the risk of B book model then he can lose money & therefore endanger the company.

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