there are no conflicts of interest, these brokers earn the same amount of money with both winning
and losing traders.
This type of forex broker is becoming increasingly popular because forex traders are reassured by
the absence of this conflict of interest, as well as the fact that these brokers have an incentive to
have profitable traders since they will increase their trading volumes and therefore the brokers'
profits.
The B Book - used by Market Maker brokers
Forex brokers that use a B Book keep their clients' orders internally. They take the other side of
their clients' trades, which means that the brokers' profits are often equal to their clients' losses.
Brokerage firms are able to manage the risks associated with the holding of a B Book by using
certain risk management strategies: internal hedging through the matching of opposite orders
submitted by other clients, spread variations, etc. As the majority of retail traders lose money, the
use of a B Book is very profitable for brokers.
It is obvious that this model generates conflicts of interest between brokers and their clients.
Profitable traders can cause these brokers to lose money. Traders are often worried about being
subject to the underhanded tactics of some brokers who seek to always be profitable. That's why
the larger market maker forex brokers use a hybrid model that involves placing trades in an A
Book or in a B Book based on traders' profiles.The hybrid model
The popularity of the hybrid model is understandable, as it allows forex brokers to increase their
profitability as well as their credibility. It also enables brokers to earn money off of profitable
traders by dispatching their trading orders to liquidity providers.To efficiently identify profitable traders, as well as unprofitable ones, forex brokers have software
that analyses their clients' orders. They can filter traders according to the size of their deposit (the
percentage of winning traders increases significantly for deposits over $10,000), the leverage used,
the risk taken on each trade, the use or non-use of protective stops, etc.
The hybrid model is not necessarily a bad thing for traders because the profits made off of traders
that are placed in the B Book enable hybrid brokers to provide all of their clients with very
competitive spreads, whether they are profitable or not. The main disadvantage of this system is
that if a hybrid broker mismanages the risk of the B Book, he can lose money and therefore
endanger the company.
The popularity of the hybrid model is understandable, as it allows forex brokers to increase their
profitability as well as their credibility. It also enables brokers to earn money off of profitable
traders by dispatching their trading orders to liquidity providers.To efficiently identify profitable traders, as well as unprofitable ones, forex brokers have software
that analyses their clients' orders. They can filter traders according to the size of their deposit (the
percentage of winning traders increases significantly for deposits over $10,000), the leverage used,
the risk taken on each trade, the use or non-use of protective stops, etc.
The hybrid model is not necessarily a bad thing for traders because the profits made off of traders
that are placed in the B Book enable hybrid brokers to provide all of their clients with very
competitive spreads, whether they are profitable or not. The main disadvantage of this system is
that if a hybrid broker mismanages the risk of the B Book, he can lose money and therefore
endanger the company.
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