Challenges of A-Book Execution Continued

Let’s continue our discussion from yesterday’s discussion of the challenges of A-Book execution.

If a broker is going to rely on price markups for its main revenue source, the price difference between what it receives from liquidity providers and what it sends to its customers must be in favor of the broker.

The broker accomplishes this by:

• Using the prices of the liquidity provider as the source for quoting its customers. Basically, the broker will only display quotes to customers where the markup is profitable.
• Entering into a trade with a liquidity provider at the same time as with its customer. This trade is also known as a “hedge”, “offset”, or “cover”.

If this trade is executed with a delay, the broker may still incur a loss if the price is changing rapidly.

Experiencing price slippage is the risk for A-Book execution for a broker.

When it displays a price to a customer, the A-book broker MUST execute on that price.

So when it comes time to hedge, it needs to make sure that it receives better prices from its liquidity providers. Otherwise, the broker will end up giving a better price to its customer and will lose money!

This is the equivalent of a grocery store selling a loaf of bread for $5 to its customers that it bought for $4.

If the store wants to make a profit selling bread, it needs to make sure if it promised its customer $5 bread…..that it can get it from its wholesale supplier for less than $5.

Otherwise, the grocery store won’t be in business for long.

Learn to Day Trade Forex

If you’d like to earn extra income trading on the Forex market, consider learning how to currency trade with Forex Smart Trade.   With their super-accurate proprietary trading tools and best-in-the-business, personalized one-on-one training, you’ll be successful.  Check out the Forex Smart Trade webinar.  It shows one of their trader’s trading and how easy, intuitive, and accurate the tools are.  Or try the Forex Smart Trade 14-day introductory trial for just TEN dollars.