No.1
What is A-Book?
The so-called A-Book refers to the broker throwing out the customer's order, throwing it to the bank or liquidity provider, etc. Then earn profits by charging spreads or commissions. The order modes such as the STP/ECN/DMA mode we usually talk about belong to the category of A-Book.
For brokers, the A-Book method transfers trading risks, and brokers can obtain stable profits completely relying on trading volume. At the same time, however, this also means that the trader has given up the opportunity of huge profits. Why do you say that? Everyone has heard of the "28th rule" in the foreign exchange market, which means that 80% of people are losing money. For the huge number of users of brokers, most users lose money when they withdraw money. To give a simple example, if a person deposits $10,000, only $100 is left at the end of the withdrawal. In this process, the brokerage fee may only earn $100, and if the platform eats up this part of the loss, the profit will be very different.
For users, brokers who implement the A-Book model have no conflict of interest with themselves. On the contrary, they can get more commissions if their trading volume increases, so they don’t have to worry about brokers preventing them from making profits. This is also the reason why A-Book brokers have always been very popular in China. However, A-Book also has its own shortcomings. The liquidity of A-Book depends on the upstream liquidity provider, and there will inevitably be problems such as order delays, inability to execute, and slippage, and the order turnover rate is low. This also affects the user experience.
No.2
What are B-Books?
Forex brokers who play the role of market makers, their trading platforms are those handled by dealers (DD). The exchange rates offered by market makers are determined based on their own interests. The profit of market making activities mainly comes from the spreads provided to customers. The spread is the bid-ask spread, usually the spread of each market maker is fixed. Since the market competition is very fierce, the spreads provided by the market are usually more reasonable. As a counterparty, many market makers will hedge trades with you, or dump the order to a third party.
This type of market-making broker is also often referred to as the B-Book foreign exchange brokerage model. Market makers will trade on the opposite side of customers. Although this has certain risks, due to the higher loss rate of customers, market makers may make more profits. Therefore, this model is still a traditional and quite popular broker. Moreover, the profits brought about by standing on the opposite side of customers' transactions are also more than simply charging commission fees.
Market makers widen spreads during periods of high market volatility and requote more often than other trading patterns. Furthermore, the most controversial aspect of market makers is that they are often considered to manipulate trades, because they can adjust their quotations to be higher or lower than the actual market rate according to their own analysis of the market. Some market makers also analyze customers' trading intentions, lower prices when customers sell, and increase prices when customers buy.
Market makers will publish the buying and selling prices on their own quotation system screens, and they execute transactions according to these prices. Customers range from banks to retail foreign exchange traders. At the same time, market makers will also provide some liquidity to the market. Market makers are the counterparty to every trade, and they must take sides with you. In other words, if you sell, they must buy and vice versa.
There are two types of market makers: retail and institutional. Institutional market makers are usually banks or other large companies that usually provide buy and sell quotes to other banks, institutions, ECNs, and even retail market makers. Retail market makers are usually companies that provide retail foreign exchange trading services to individual traders.
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At present, most securities companies have both A-Book and B-Book. The biggest challenge for brokers in this model is risk control. How to find out loss-making customers and profitable customers is extremely important for brokers, but At the same time, there are also very high requirements for the implementation of A-Book, which directly affects the customer experience.
Whether it is A-BooK or B-Book, there are advantages and disadvantages for individual traders, just like the market maker model. The important thing is that everyone is willing to gamble and admit defeat. A good broker, as long as he abides by the rules , Execute well when doing A-Book, provide users with a good trading environment, do not intentionally slip or delay when doing B-Book, do not break the rules, and do not hinder users from making profits. For users, that's enough. The main thing to pay special attention to is that for real institutional documentary, it must be traded in A-Book.
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