A-book and B-book brokers: the difference

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Historically, the term “broker” meant an intermediary who handled business between a seller and a buyer. In the field of trading, a broker is a sales representative who is a legal entity. He has a professional status in the capital market and has the authority to enter into transactions and transactions on behalf of his client.

Based on their strategy and methods, all financial brokers can be divided into three groups: A-book, B-book and those working on a hybrid model. ParadTrade talks in more detail about the features of all three models.

How does the A-book model work?

A-book brokers use Straight Through Processing (STP) or Electronic Communication Network (ECN) methods. Under this model, all customer orders are routed directly to liquidity providers or multilateral trading venues (MTFs).

Thus, all trader transactions are directly brought to the market. A-book brokers earn money by expanding the spread (in other words, the difference between the purchase and sale prices of an asset) and charging commissions for their services, which do not depend on the trader’s trading results.

Many people trust A-book brokers due to the guarantee of no conflict of interest. The broker makes a profit, regardless of the result of the trader’s transaction, whether it is a win or a loss. On the other hand, in comparison with B-book brokers, A-book brokers offer less favorable spreads and, accordingly, this will be reflected in the client’s profit.

B-book brokers: is it worth working with them?

A B-book broker, on the contrary, does not seek liquidity in external markets, but independently ensures the execution of its clients’ transactions. In this case, the broker acts as a market maker, being the counterparty in the transaction.

Many traders are afraid to work with B-book brokers, since the latter become counterparties in a transaction on the same instrument, but in the opposite direction. In this way, the broker hedges his position and the client trades against another client of the same brokerage company.

However, in reality, the B-book model is just a feature, not a disadvantage. Brokers working on this model have a number of advantages:

  • Low commissions, since the intermediary does not pay for the services of the liquidity provider.
  • Fast execution of transactions and minimization of slippage.
  • Reliability – the fewer links in the order execution chain, the lower the likelihood of technical failures.

B-book practice, when used correctly, can benefit the market by reducing costs and increasing trading efficiency. When choosing a B-book broker, you should consider not only the practice itself, but also other factors, such as the technology used by the broker, the company’s regulation, its experience and reputation.

Why does ParadTrade use a hybrid model?

Currently, most brokers – including ParadTrade – use a hybrid model to manage their clients’ trades. Within its framework, the broker divides his work into different categories. Some clients are routed to the Electronic Communications Network (ECN), while others are matched internally or the broker takes the other side of the trade.

This approach offers several inherent advantages as it allows traders to choose the best of both major models. This is why ParadTrade is able to provide the best services for both beginners and professional traders. In our work, we combine transaction security with the absence of unnecessary commissions, low spreads with the speed of transaction execution.

Interested in working with ParadTrade? Then leave a request on our website to take a trading training course for beginners and traders with many years of experience!

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