Understanding Your Broker’s B Book
Do some brokers trade against their own clients? Yes. Is it always a bad thing? Find out in this video.
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We have a quick question here from a subscriber saying that they've heard that some brokers trade against their own clients and wants to know whether this is true, and how it can be avoided.
It's a real valid question, and we'll be happy to share some thoughts on this matter. Also, keep in mind that I'm not an expert in all the nuance differences between brokers, some brokers might be slightly different, might have some slight variations on some of the things we'll discuss, so don't take this as a as a rule book, just take it as a general guide for how brokers normally work.
So the first thing that I think it's important to mention right from the start is that there is a very real problem in the industry with unscrupulous brokers and they are real and it's unfortunate that they only have one thing in mind and that is to rip you off by taking and trading against you. But it's also important to realize that not every broker that necessarily takes a counterparty trade against you is necessarily unscrupulous or trying to be dishonest, there might be a reason, a beneficial reason for them to do that. Now before you jump up and rage for me saying that just give me a second to explain why.
You see generally speaking, there's two types of brokers you will get an A-Book broker and then a B-Book broker. An A-Book broker is a broker that executes with STP or straight-through processing or something like an ECN which is electronic communications network.
Now, the difference between STP and ECN is very subtle, STP, your order gets sent straight through to the interbank market and with ECN your order is tried to basically be matched up with the liquidity pools inside a electronic network. Now this is normally known as non dealing desk brokers.
Now, for most brokers or traders rather, this is considered as the best brokers to deal with because there's not that conflict of interest between you and the broker because the broker doesn't win when you lose that only make money from spreads and commissions, which is great.
On the other hand, you also get B-Book brokers also sometimes known as market makers or dealing desk brokers. And essentially they act as the counterparty to all the clients trade. So, all the orders are processed in house from their own desk.
Now, for many this is a really bad thing obviously, because there's a huge conflict of interest when your broker wins when you loses. And since they are the ones controlling the spreads as well as the commissions so if you have a very dishonest broker, they can manipulate or make the market to trade against you, and when you lose they win, and even if you win, they still win because they made money on the spread and the commissions. So just by weighing these two against each other you can see why you would want to be trading with an A-Book broker.
However, there is one snag...
**For more detail watch the video or visit www.forexsource.co
You can trade on 10 different brokers and you'll have varying different results based on the spreads and the commissions yes, that is true, but don't blame the broker for consistently losing money, right? That is usually down to over leveraging, bad trade management, a lack of trading experience or just, bad trade psychology.
So always keep in mind that the focus should be on becoming a better trader. As I said, if there's weird things happening then by all means just move to another one, but the broker is certainly not the cause for the majority of losses in the trading community. So I hope that helps, any other questions don't hesitate to let us know.
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If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
We have a quick question here from a subscriber saying that they've heard that some brokers trade against their own clients and wants to know whether this is true, and how it can be avoided.
It's a real valid question, and we'll be happy to share some thoughts on this matter. Also, keep in mind that I'm not an expert in all the nuance differences between brokers, some brokers might be slightly different, might have some slight variations on some of the things we'll discuss, so don't take this as a as a rule book, just take it as a general guide for how brokers normally work.
So the first thing that I think it's important to mention right from the start is that there is a very real problem in the industry with unscrupulous brokers and they are real and it's unfortunate that they only have one thing in mind and that is to rip you off by taking and trading against you. But it's also important to realize that not every broker that necessarily takes a counterparty trade against you is necessarily unscrupulous or trying to be dishonest, there might be a reason, a beneficial reason for them to do that. Now before you jump up and rage for me saying that just give me a second to explain why.
You see generally speaking, there's two types of brokers you will get an A-Book broker and then a B-Book broker. An A-Book broker is a broker that executes with STP or straight-through processing or something like an ECN which is electronic communications network.
Now, the difference between STP and ECN is very subtle, STP, your order gets sent straight through to the interbank market and with ECN your order is tried to basically be matched up with the liquidity pools inside a electronic network. Now this is normally known as non dealing desk brokers.
Now, for most brokers or traders rather, this is considered as the best brokers to deal with because there's not that conflict of interest between you and the broker because the broker doesn't win when you lose that only make money from spreads and commissions, which is great.
On the other hand, you also get B-Book brokers also sometimes known as market makers or dealing desk brokers. And essentially they act as the counterparty to all the clients trade. So, all the orders are processed in house from their own desk.
Now, for many this is a really bad thing obviously, because there's a huge conflict of interest when your broker wins when you loses. And since they are the ones controlling the spreads as well as the commissions so if you have a very dishonest broker, they can manipulate or make the market to trade against you, and when you lose they win, and even if you win, they still win because they made money on the spread and the commissions. So just by weighing these two against each other you can see why you would want to be trading with an A-Book broker.
However, there is one snag...
**For more detail watch the video or visit www.forexsource.co
You can trade on 10 different brokers and you'll have varying different results based on the spreads and the commissions yes, that is true, but don't blame the broker for consistently losing money, right? That is usually down to over leveraging, bad trade management, a lack of trading experience or just, bad trade psychology.
So always keep in mind that the focus should be on becoming a better trader. As I said, if there's weird things happening then by all means just move to another one, but the broker is certainly not the cause for the majority of losses in the trading community. So I hope that helps, any other questions don't hesitate to let us know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
