All ECN and STP Forex brokers use A-book execution; they act as an intermediary who sends their client’s trading orders to liquidity providers or MTFs (multilateral trading facilities). These forex brokers make so much money by just increasing spreads or charging commissions on a bunch of orders. Therefore, without conflicts of interest, these ECN and STP Forex brokers can earn the same amount of money with winning & losing traders.
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The B Book - used by Market Maker brokers
Forex brokers who use B-book execution Forex models always keep their client’s orders internally rather than they take the other side of client’s trades i.e. the broker’s profits are often equal to client’s losses. By using risk management strategies (internal hedging, spread variation etc.), brokerage firms are able to manage the risk associated with holding a B-book trade execution. Use of the B-book execution Forex model is very profitable for brokers because most retail traders lose their money while trading.
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The Hybrid-book Execution: A-book Execution + B-book Execution
Hybrid-book execution Forex model is so popular in brokers because it allows them to maximise their profit as well as credibility. It also helps brokers to earn more money by dispatching trading orders to liquidity providers like A-book trade execution Forex model.
Forex brokers have a software program that helps them to analyse client’s orders, identify profitable traders as well as unprofitable ones. They can easily apply filters on traders, according to the amount of their deposits, risk taken per trade, leverage used, proactive stops and more.
Hybrid-book execution Forex model is not always a bad thing for traders because profit made from traders, which is placed in B-book, enables brokers so they need to provide all their clients competitive spreads whether they are profitable or not. The biggest drawbacks of this system is if the hybrid broker cannot be able to manage the risk of the B-book execution Forex model then he can lose money & therefore endanger the company.
Pass your order straight through to the market (A-book execution).
They keep your trade and pass the OPPOSITE side of your trade through to the market (B-book execution).
They identify potential profitable traders and pass their trades straight through the market, whilst taking the opposite for the rest (A-book Execution + B-book Execution, also known as the Hybrid Forex model).
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