B-Book: How Forex Brokers Manage Their Risk.

Continuing our examination of B-Book: how forex brokers manage their risk, let’s take a look at the potential conflict of interest.

Potential Conflict of Interest

There is a lot of controversy with B-Book execution.

Since your broker makes money if you lose money, there exists a potential conflict of interest.

It creates the potential for the broker to do “bad” things to increase the chances that your trades lose.

This causes traders to be concerned about shady behavior from brokers who don’t want their customers to win.

We won’t go into examples of broker shadiness just yet since the focus of this lesson is how forex brokers manage their market risk (not how shady brokers take advantage of their customers).

For now, just know that when a forex broker chooses to accept market risk (“B-Book execution”), a major downside to doing this is that a potential conflict of interest does exist between a broker and its customers.

In the next lesson, we’ll learn another way that a broker manages market risk: by transferring it (or “A-Book execution”).

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