Forex is a complex market, and it can become even more complicated if you don’t have a solid, trustworthy broker to help you through the process. Brokers differ in a variety of ways, but the most important thing to consider is how you would like to trade. There are two different ways that you and your broker can trade on the forex market, and it is crucial to think about the pros and cons of each before deciding to choose one or the other. Here are the basics of A Book trading versus B Book trading.
A Book Trading
A Book is the most common form of forex trading, as it is directly associated with the banks, otherwise known as liquidity providers. Brokers that utilize A Book trading will serve as an intermediary between you and the bank. They will manage your trades, give advice where needed, and even pull your trade if it reaches the point of maximal profit. The best thing for you as the trader is that A Book trading does not involve any conflict of interest. A Book brokers earn their money by increasing the spread of a trade or by charging commission on the volume of trades; therefore, they benefit from your success. Essentially, if you succeed, you’ll most likely begin to trade more often, and the more trades you submit, the more money they can make.
B Book Trading
B Book is a high risk, high reward type of trading and is often reserved for individuals who trade large sums of money on the forex market. The way it works is similar to a casino. First, you decide which currency you would like to trade on. Then, your broker can decide to accept or decline. If they accept, that means they are essentially better against your trade. With B Book trading, everything is typically kept in-house, meaning that if the market trends in your favor, the broker must pay you; however, if the market steers the other direction, the broker will keep your funds. The main problem from a trader’s perspective is the conflict of interest that is involved in this type of trading. Your broker is typically supposed to have your best interest in mind, but in this case, they stand to benefit from your failure, so they could manipulate elements of a trade or the market to steer things their way. This is why it is extremely important to do your due diligence if you decide to go the B Book route.