What is a B-Book Forex Broker and is it Bad?

What is B-Book?

A-Book and B-Book are common terms used in the forex trading industry. A-Book is the practice of a broker sending their client’s orders directly to their Liquidity Provider. This is considered external execution with a third-party. B-Book is the practice of a broker internalizing their client’s. This is considered internal execution. Many traders are under the impression that it’s a bad thing if a broker is running a B-Book. A lot of forex traders also have the notion that they are trading with banks or on stock exchanges. This article will explain in great detail what B-Book execution actually is and the surprising benefits that it has for traders.

How does B-Book Work

As we all know, forex and CFD brokers provide trading platforms. These platforms are where their clients can primarily trade. Trading platforms also have other features, such as charting capabilities, technical analysis indicators, algorithmic trading and copy trading. The prices you see for currency pairs (stocks and other asset classes work a bit differently) inside the trading platforms usually originate from a Liquidity Provider. This is always the case in cTrader. The company has made clear statements about this on multiple occasions. For other trading platforms, you have to take your brokers word for it. While these quotes come from an actual Liquidity Provider, your broker can make the decision to not send orders to them. This means the broker accepts your order and fills it based on the price from the LP but doesn’t send the same order to the Liquidity Provider. When you close your position, it’s exactly the same procedure. The broker fills your order based on the price from the LP, but doesn’t send any orders to them.

Do B-Book Forex Brokers Want you To Loose?

B-Book forex brokers take the opposite side of their clients trades. This means that they do profit when clients lose. However, it doesn’t mean they want you to lose. If a broker has just one client and they used B-Book, of course, they wouldn’t want their only client to be profitable, because that means the broker is not. However, brokers don’t have single clients, they have thousands. This changes the picture completely. Brokers will have a sophisticated risk management strategy. They need to manage all of the variables. Some clients can be long, some can be short. Some will have small balances and high leverage, some will have large balances and low leverage. The concept of B-Book brokers has received bad publicity in the trading community. This is because some bad players have been cheating their clients by manipulating the trading conditions. But they were scam brokers who set out to do wrong the very beginning. On the surface, it seems that there is a conflict of interest, what B-Book brokers are actually doing is managing the risk of their entire client base in such a way that they can have a more profitable business that benefits everyone.

The Benefits of a B-Book Forex Broker

When you are trading on the markets there are many common downsides that can be addressed by a B-Book forex broker model. They can improve 

    • Higher Fill Ratio. Limit Orders must be filled at the price specified or better. If they are straight through processed they are sent to a Liquidity Provider they may not accept the Limit Order order because the spot price has moved. This means Limit Orders have a better chance of being filled by a B-Book broker.
    • No slippage. Market Orders sent to Liquidity Providers are filled using Volume Weighted Average Price (VWAP). This is the origin of slippage. If your orders are executed on B-Book it’s possible that you will get the top of the book price without any slippage. This results in a better deal for you.
    • Higher Leverage. Typically Liquidity Providers do not give brokers leverage more than 1:100. This means an A-Book broker who gives 1:200 leverage to their clients must have twice as much margin as all of their clients combined. A B-Book broker can offer whatever leverage they want because they do not send all orders into the market.
    • Reduced Costs. A-Book brokers have to pay commissions to Liquidity Providers too. Those costs have to be recovered somehow. B-Book Brokers, on the other hand, are able to avoid those costs which allow them to be more competitive.
    • High Risk to Brokers. Brokers who want to use A-Book must deposit huge collaterals with their Liquidity Providers. The amount must be enough to support all of their clients trading activities, plus extra depending on how much leverage they offer clients. The problem is, brokers are considered professional clients and if for any reason the Liquidity Provider goes out of business, the broker is likely to lose some or all of the funds held by that LP. At the same time, while all of this chaos is happening behind the scenes, brokers must not fail to fulfil their obligations to you.

 

 

When a B-Book Forex Broker can be Good

In respect of the advantages highlighted above, B-Book forex brokers are able to still operate in the interest of their clients. We think that running a B-Book brokerage model is acceptable as long as;

  • Brokers are honest about it and do not claim to be an STP or ECN only broker.
  • Orders are filled according to live market quotes from genuine liquidity sources or data providers.
  • It is done through a transparent platform that does not allow price manipulation and price fabrication.
  • Deposits and withdrawals are processed in a timely manner.

Ultimately what makes a broker good or not has little to do with A-Book or B-Book, but rather how the company conducts its business. An A-Book broker can still go against their client’s interests as easily as a B-Book broker can. Any broker can withhold deposits, manipulate trading history, give bad quotes and lie to clients. Always be careful when researching a broker. Don’t assume that mentions of STP or ECN are attributes of a good broker. This has little to do with it. The best advantage you can give yourself is to arm yourself with knowledge. Consider how a brokerages operation actually works before making decisions.

Want to Find a Good Forex Broker?

If you want to find a good broker to start trading with, we wholeheartedly suggest choosing one with cTrader. A forex broker offering the cTrader platform sends a strong message. We have a great list of vetted cTrader brokers to help you get started. 

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