We Never Trade Against You
Our brokerage only offers true 100% ECN (Electronic Communication Network) Straight Through Processing for all trades. While other brokers see traders as likely losers and trade against them on B-Books, we are banking on you winning and being our client for years to come. Besides, our downloadable automated strategies are built to win, so we expect to build lasting relationships with our traders for years to come.
What the Heck is a B-Book and Why Does Automata FX Take Such a Strong Stance In Opposition to B-Book Brokerages?
Look, we are traders too, just like you, and we can’t stand the idea of traders and brokers having an adversarial relationship. Broker’s using B-Books are creating just that – an adversarial relationship with their client. Here’s what a B-Book is and why we refuse to incorporate such a horrendous practice in our Brokerage.
In order to truly understand how a B-Book brokerage differs from a Prime Brokerage, like Automata FX, we need to first consider, the manner of trading familiar to most of us. If you’ve ever traded stocks, futures or bonds, you know that once you place your trade, your broker quickly submits your trade to the market, where it is placed with a buyer or seller. This direct market access is available in Forex trading too. In Forex, a broker that offers this direct market access or “Straight Through Processing” (STP), sends your order directly to their liquidity providers, which represent the Foreign Exchange Market. Brokers that simply service your trade orders like this (brokers like Automata FX for example), are often referred to as Prime Brokers. This process of Straight Through Processing is also sometimes referred to as A-Book trading. However, Forex brokers also have the option of processing trades off-exchange. This means that a broker has the option of keeping your trades ‘in house’ if they want to. In this scenario, your broker actually bets against you, taking the other side of the trade, rather than sending your trades to the real market. This is type of off-exchange trading against the client, is referred to as B-Book trading.
Why Do So Many Other Brokers Run a B-Book Against Their Client?
In a nutshell, B-Book operations are extremely profitable for brokerages, because brokers who trade against their clients have an enormous statistical advantage. Their advantage is based on the fact that most of us retail (non-professional) traders have an astonishingly high failure rate. Take a quick tour of the internet and you’ll soon discover that those who investigate the statistics of retail (non-professional) traders typically quote the failure rate at or above 90%. We can go on and on about the myriad of obstacles that stand in the way of a typical retail trader’s success, but we’ll save the rants for the blog. For now, we’ll just focus on the most pertinent advantage that a B-Book Broker has over you, their “valued” client: brokers don’t have to give themselves a margin call. So, let’s just say that you’re opening numerous trades, and some of them happen to go against you, just enough to trigger a margin call. When this happens your typical broker will close some of your positions at a loss. In fact, it is the policy of some brokers to close your entire position rather than closing enough trades to free up your margin. Your B-Book broker, however, has the ability to “ride out” the losers and close them at a more advantageous price. In essence, the B-Book broker can use the B-Book as a hedge against the trades you are placing, closing your trades at losses and closing their trades when it best suits them.
Margin calls can be disastrous for your trading account and while margin calls benefit a B-Book broker, they would actually be detrimental to our business in the same way that they would be detrimental to you. Quite simply, because our business model is that of a Prime Brokerage, if you lose, we lose a client, and we do not want to be in the business of churning through clients like so many of the other brokerages. We believe that a brokerage should simply service a client’s trade orders and simply collect a fee for the services rendered. Sounds fair, doesn’t it?
When a Brokerage Advertises STP Trading Does That Mean That They Do Not Use a B-Book?
This is where things can get a little more difficult for a client to make a decision that is in his or her best interest. It’s becoming common practice for some brokerages to employ a “hybrid” scenario, touting STP in their marketing, but then choosing to keep profitable traders on an STP trade execution and placing less successful traders on the B-Book style of execution. Recognizing this hybrid style of brokerage can be a big challenge, however. One often must do some digging to find evidence of this hybrid style of execution in fine print. You shouldn’t have to do detective work to find out how your brokerage treats your trades. That’s why we are bypassing the fine print here and telling you in no uncertain terms: