You buy from the broker and sell to the broker. If you make money, the broker loses money, and vice versa.
This means that when you lose, the broker profits.
And if all you do is keep losing, then the broker is slowly capturing more and more of the money that you initially deposited in your trading account.
Retail traders tend to act like gamblers, and a B-Book broker acts as the “house”.
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.
There’s even a popular rule known as the “90/90/90 rule“. This rule states that “90% of new traders lose 90% of their money in 90 days.”
We’re not sure how accurate this rule is but whether it’s 90 days or 12 months, imagine being a B-Book broker with these customers.
All you have to do is sit back., relax…and WAIT for your customers to lose, then watch your profits roll in.
To provide a simple example, here’s how much money a B-Book broker makes over a year, assuming an average deposit of $1,000.
|Percentage of deposit that customers lose after 12 months|
|# of Customers||Total Deposits||60%||70%||80%||90%|
While an average deposit size of $1,000 might be considered small, as you can see, being a B-Book broker can be extremely lucrative!
It can even be more lucrative if brokers can get their customers to deposit even larger amounts.
Now….just because B-Book brokers profit when their customers lose does NOT necessarily mean that they WANT their customers to lose.
Yes, it does benefit the B-Book broker if you lose, but all the hullabaloo about every B-Book forex broker is trading against you is either propaganda created by A=Book brokers wanting to “take market share” or traders who refuse to entertain the notion that they might actually be losing because they just suck at trading.
If a broker has just one customer and uses B-Book execution, then obviously, it wouldn’t want the trades that its ONLY customer makes to win.
That would mean the broker would be on the losing side every single time and would be running an unprofitable operation. So yes, in this specific scenario, the broker does want its sole customer to lose.
However, brokers don’t have just one customer, they have many.
What B-Book brokers really WANT is to pocket the spread AND not have to hedge (because hedging costs money).
The problem is that since the broker takes the opposite side of their customers’ trades; it exposed them to the risk of being on the losing side of the trade.
And if they don’t want to be exposed to this risk, they have to hedge unless…
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