THE DIFFERENCE BETWEEN A-BOOK AND B-BOOK BROKERS
A-BOOK AND B-BOOK BROKERS It’s not like there’s a secret fraternity of A-Book brokers that walk around in white suits releasing doves into the wild and saving homeless traders from the street. Imagine you want to buy some USDJPY, your broker places the order with the bank, the bank then digs into their vault and fills your order.
This A-Book transaction is what most people understand as the role of a traditional broker. When placing a trade on the brokers B-Book, they fill your trade internally. Instead of passing your trade along to the banks, they’ll fill you from their balance sheet. I’ve even been told the regulators actually encourage the practice because it results in clients trades executing at a better price (due to the order being filled instantly).
“How can this possibly be legal?!”
I know I know… I was as shocked as you when I first learned how the inner workings of the brokerage industry operate. They have the OPTION to fill the trades internally (B-Book) or pass them through to the market (A-Book).
As a client, you’ll likely never know which book you’re on.
In my experience, big accounts are placed on A-Book due to the risk to the broker. That’s not a risk most brokers are willing to take!
On the other hand, if you’re trading a small account the odds are that your trades are executed on B-Book.
How can you test?
If your trades are being filled quickly during a news release, then it’s a safe bet you’re on B-Book. Traditionally liquidity dries up during times of high volatility, so it’s harder to find a counterparty (bank) to fill your trade. If you’re trading an EA that makes money during news releases, then I can say with 99.99% certainty that you’re on B-Book.
Does it matter?
I don’t think it does. I want my, and my broker’s motivations to be aligned
The only way to ensure that happens is to trade profitably.
Take their money initially, then they’ll move you to A-Book and you’ll all trade happily ever after.