Most forex brokers use a hybrid approach.
We don’t see anything wrong with a broker operating both A-Book and B-Book.
The profits gained from traders placed in the B-Book allow brokers who use a hybrid approach to provide all their customers with very competitive spreads.
The main disadvantage of this approach is that if the broker manages the risk of B-Book poorly. The broker could end up blowing up and going out of business.
Trades from new retail traders will most likely be B-Booked. This makes sense since most new traders lose.
This is easy money for the broker.
It’s very rare for a retail forex broker to be 100% A-Book.
This is because it is a tough business model.
The A-Book model is a much lower-margin business than B-Book and requires brokers to focus on customers who trade frequently in large quantities while trying to keep costs as low as possible.
With so many unprofitable traders, a B-Book model provides an additional source of revenue.
There is nothing wrong with a retail broker having a hybrid of both A-Book and B-Book.
What is wrong is when a forex broker starts to manipulate trades in its favor.
The most important consideration for a retail broker, at least in a well-regulated jurisdiction, should be ensuring fair pricing and the best order execution for their customers, regardless of whether it adopts an A or B book model.
Regardless of the broker’s execution model, what’s most important is that retail traders receive transparent prices that track the “real”(institutional) FX market in real-time AND be able to get their orders filled at these prices (or better) without any delays.
We will discuss pricing and order execution quality in more detail in later lessons, but first, let’s learn one more “risk management” approach that forex brokers use.
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