Months have gone by since I've published any posts on fx brokers, luckily over this time I have learned allot concerning the currency trading industry in general, the forms of brokers, the infrastructure they use and how they operate in practice.
Following several weeks of exploration I finally think that I'm ready to share with my fellow traders the facts regarding brokers and how they actually make their money. It makes me feel rather queasy as I type this but the fact of the matter is that almost all fx brokers aim to take advantage of their clients losses. As ridiculous as it sounds it's actually the truth, there's allot of fx brokers in existence who run what is called a B Book. Basically a B Book is an internal dealing book which a broker uses to house the positions of their clients who consistently lose money, these positions remain unhedged by the fx broker, resulting in them cashing in on their client losses.
Luckily you will discover quite a few decent fx brokers also, highly regarded fx brokers will normally A Book all customers positions, basically this means that positions of all their clients stay completely hedged in the underlying marketplace meaning they don't cash in on client losses but simply benefit from trading volume only. Often A Book fx brokers will charge their customers a commission on their deals.
Now there's also ECN brokers, an ECN fx broker basically provides a mini market place where buyers and sellers get together to trade against each other. An ECN forex trading market place is the best tranperant kinf of forex trading that you can get as there is absolutely no broker intervention and you as a client become a price maker not just a price taker. Regrettably there are actually hardly any ECN brokers in this world, this is because maintaining an ECN set-up is expensive and often the small amount of takings generated from the fee charged is just not adequate to cover costs.
So now you understand the difference between a B Book forex broker, A Book forex broker and an ECN forex provider. Naturally deciding on either of the latter two forex provider types would be your best option.
Now it is really up to you to choose a fx broker with the most favorable dealing conditions. One main aspect to think about is the stop-loss and take-profit trade distance that various brokers require. I've witnessed quite a few providers in recent times who assert to be A Book brokers but they impose a stop-loss and take-profit order distance of 2 pips. Sadly really the only reason a broker might require this type of limit would be to avoid their clients from scalping for small increments, now ask yourself the question, if your forex broker was an A book or ECN forex provider why might they impose this type of limit? The truth of the matter is many of these fx brokers aren't actually A book or ECN brokers they're in fact B book fx brokers and impose this limit to prevent their clients taking money off them when they scalp for tiny increments. A True A book or True ECN broker will never impose such a limit.
Following several weeks of exploration I finally think that I'm ready to share with my fellow traders the facts regarding brokers and how they actually make their money. It makes me feel rather queasy as I type this but the fact of the matter is that almost all fx brokers aim to take advantage of their clients losses. As ridiculous as it sounds it's actually the truth, there's allot of fx brokers in existence who run what is called a B Book. Basically a B Book is an internal dealing book which a broker uses to house the positions of their clients who consistently lose money, these positions remain unhedged by the fx broker, resulting in them cashing in on their client losses.
Luckily you will discover quite a few decent fx brokers also, highly regarded fx brokers will normally A Book all customers positions, basically this means that positions of all their clients stay completely hedged in the underlying marketplace meaning they don't cash in on client losses but simply benefit from trading volume only. Often A Book fx brokers will charge their customers a commission on their deals.
Now there's also ECN brokers, an ECN fx broker basically provides a mini market place where buyers and sellers get together to trade against each other. An ECN forex trading market place is the best tranperant kinf of forex trading that you can get as there is absolutely no broker intervention and you as a client become a price maker not just a price taker. Regrettably there are actually hardly any ECN brokers in this world, this is because maintaining an ECN set-up is expensive and often the small amount of takings generated from the fee charged is just not adequate to cover costs.
So now you understand the difference between a B Book forex broker, A Book forex broker and an ECN forex provider. Naturally deciding on either of the latter two forex provider types would be your best option.
Now it is really up to you to choose a fx broker with the most favorable dealing conditions. One main aspect to think about is the stop-loss and take-profit trade distance that various brokers require. I've witnessed quite a few providers in recent times who assert to be A Book brokers but they impose a stop-loss and take-profit order distance of 2 pips. Sadly really the only reason a broker might require this type of limit would be to avoid their clients from scalping for small increments, now ask yourself the question, if your forex broker was an A book or ECN forex provider why might they impose this type of limit? The truth of the matter is many of these fx brokers aren't actually A book or ECN brokers they're in fact B book fx brokers and impose this limit to prevent their clients taking money off them when they scalp for tiny increments. A True A book or True ECN broker will never impose such a limit.
About the Author:
Unfortunately very few forex brokers actually disclose their operational procedures to their clients, for understandable reasons. I've conducted allot of homework myself and trialed a variety of brokers all over the world and only discovered one broker that I know for certain is a True ECN forex broker, this is IC Markets in Australia.
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