Historically, the term “broker” meant an intermediary who handled business between a seller and a buyer. In the field of trading, a broker is an intermediary, which is a legal entity that provides access to transactions for the purchase or sale of various financial assets between its clients and market makers.

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 work according to the NDD (No Dealing Desk) model, i.e. without using a dealing desk. NDD brokers provide their clients with direct access to the interbank market.

A-Book brokers (NDD) mainly use 2 methods of bringing transactions to the market: Straight Through Processing (STP) or Electronic Communication Network (ECN). 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 can hedge its positions at the expense of clients. But so far statistics are not on the side of traders: out of ten traders, according to statistics, only three constantly earn money. We previously wrote about the most common reasons that lead to loss of funds.

However, in reality, the B-book model is just a feature, not a disadvantage. Brokers working on this model have a number of advantages. After all, a conflict of interests between a client and a normal company is simply impossible. You should be wary of one-day scam companies whose goal is to steal other people’s money.

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.

How does the hybrid model work?

Currently, most brokers use a hybrid model to manage their clients’ transactions, combining A-book and B-book. Within its framework, the broker, depending on the amount of the deposit, brings one part of the transactions to the interbank market, and leaves the other part within the company. This allows you to enjoy the advantages and mitigate the disadvantages of both models, because both A-book and B-book have their pitfalls.

A-book is a simpler model for a broker, but at the same time it brings him less money. This leads to the disadvantages of this model for clients: large commissions and spreads and the difficulty of working on such a platform for beginners. Because of this, there are often cases when A-book brokers simply go bankrupt, since the costs of attracting new clients turn out to be greater than the income from trading ones.

At the same time, B-book requires more effort from the company to balance, while bringing greater monetary benefits. But with prolonged trend movements, together with illiterate administration of transactions, it can also lead to bankruptcy.

Therefore, only by combining both models is it possible to ensure the stable development of the company, its long-term presence in the market and customer satisfaction.

What model does ParadTrade work on?

Naturally, ParadTrade operates on a hybrid model. We connect A-book and B-book using artificial intelligence, which is administered by a qualified team of risk managers. This approach offers several inherent advantages as it allows traders to choose the best of both major models.

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.

If your strategy prioritizes the guarantee of bringing transactions to the market using a certain technology, you can always use ECNParad and Interbank accounts.

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!