Brokers and Platforms
Retail forex has an unusual property: your broker is frequently your counterparty. That is not automatically sinister, but it creates incentives you should understand, because they shape spread, slippage and which trading styles a broker welcomes.
The three models
A
A-book
Your order is offset with a liquidity provider. The broker earns commission and markup and is indifferent to your result. Costs are visible and usually higher.
B
B-book
The broker takes the other side and keeps the risk internally. Spreads can be tighter; the broker profits when clients lose in aggregate.
C
Hybrid
Client flow is segmented. Consistently profitable accounts are routed out; the rest is warehoused. This is the industry norm.
The hybrid model explains behaviour that otherwise looks arbitrary. A trader whose results improve may find execution quality changes — not because anyone is punishing them, but because their flow has been reclassified and is now being hedged externally, with the costs that implies.
What each model means for you
| If your broker is | Expect | Watch for |
|---|---|---|
| A-book / agency | Commission plus raw spread, variable spreads, honest widening in thin liquidity | High total cost for high-frequency styles |
| B-book | Tight fixed spreads, no commission, smooth pricing | Asymmetric slippage, requotes, restrictions during news |
| Hybrid | Good conditions initially | Changes in fill quality as your profile changes |
How to tell which one you are on
- Read the account type description for the words agency, principal, market maker or dealing desk. The legal documents are more honest than the marketing pages.
- Commission-free plus fixed spread almost always implies principal dealing.
- Compare your fills on fast moves against an independent feed. Consistent negative slippage on stops with no positive slippage on limits is a strong signal.
- Ask directly, in writing. The answer, or the refusal, is informative.
Match the model to your style
If you trade frequently and your edge is thin, pay commission for agency execution and measure the total cost. If you swing trade a handful of times a month, tight all-in pricing on a principal model is usually the better economic deal. Choose deliberately instead of accepting whichever account the sign-up page offered first.
Nobody is obliged to give you good execution. You are obliged to find out what you are getting.
Written by Adrian Vestberg — former interbank FX dealer, now running a two-person discretionary desk.