Forex trading is very different from other types of trading. One thing which you may have heard about is A-book trading and B-book trading. You may have also seen some brokers make claims that they only do A-book trading and do not do B-book trading.
Let's look into what these concepts mean and the difference they make for you.
A-book trading is simply normal trading. You tell your broker to make the trade and he or she will make the trade. Book traders will have no conflict of interest with brokers and all of the dealings will be done directly with the markets and not with the brokers or the firm where the brokers are working.
In B-book trading your trade never leaves the firm and your broker bets against you. Now most people are very surprised when they learn about this type of trading, but the reality is that this is how many brokers make money. You tell your broker to buy forex at a certain rate and they will do it. What you will not know is that your request never reached the market. Instead the broker felt that your trade will result in a loss and became the other party in the trade.
Therefore, in such a trade if you make a profit, the broker will make a loss. Similarly if you incur a loss, the broker will make a profit. Most people are very uncomfortable with this arrangement however it is not as bad as it sounds.
What you have to understand is that your broker is there to do the trades you ask them to do. If you ask them to do a bad trade, you will have lost money on it in the market as well. The broker, by keeping your trade in house, has not increased your losses. Instead the broker has simply ensured that your loss will be a profit for them instead of someone else in the market.
However, there are obvious conflicts of interest when we talk about B-book trading. The biggest problem which must be apparent to you by now is that customers who face losses are better for the brokers. Brokers will approach customers who make bad trades so they can make money off of them and will try to avoid good traders. On the other hand A-book trading has no such conflict of interest in it. Thus, if you want to make sure that there is no conflict of interest and that your broker is not making a profit when you are incurring losses, you should go for firms that only do A-book trading. The brokers at such firms will always try to help you make right decisions because the more you trade the more money they make. They do not make money off your losses but by your business.