Behind the
Scenes of Forex

Retail forex brokers typically operate using two primary models: A-Book and B-Book. In a B-Book environment, the broker acts as a "Market Maker." This means they do not pass your orders to an external liquidity provider. Instead, they keep the trade within their own internal ledger.

Statistical data shows that approximately 75-90% of retail traders lose their initial capital within the first few months of trading. For a broker, the B-Book model is a way to capture that lost equity as direct revenue. By not hedging your position, the broker eliminates the cost of liquidity and retains 100% of your trading losses as gross profit.

Profitable traders, however, pose a significant risk to a B-Book broker. To mitigate this, most established firms use a Hybrid Model. Their risk management software automatically flags accounts that show consistent profitability or high-volume scalping. These "toxic" accounts are then moved to an A-Book execution, where trades are hedged with external banks to protect the broker's balance sheet.

Regulation is the only thing standing between a trader and total capital loss in the event of broker misconduct. However, not all regulations are equal. Brokers often use offshore registrations to bypass strict leverage and bonus restrictions imposed by Tier-1 regulators like the FCA (UK) or ASIC (Australia).

In jurisdictions like St. Vincent and the Grenadines (SVG), the FSA explicitly states that it does not issue "licenses" for forex trading. It only issues company registrations. This means there is no audit of the broker's capital, no requirement for segregated accounts, and no compensation fund if the broker disappears.

Marketing teams love the phrase "Zero Commissions." It targets the subconscious need for free services. However, a broker's cost of doing business must be covered. In this model, the cost is hidden within the Spread Markup.

A broker receives a price from their liquidity provider (the "raw" spread). They then manually or algorithmically add 0.5 to 2.0 pips to that price. This markup is a hidden commission that you pay every time you enter and exit a trade. Over hundreds of trades, this "free" trading model often costs significantly more than a flat-fee commission model with raw spreads.

Additionally, in high volatility events, B-Book brokers may artificially widen spreads further than the actual market conditions require. This is done to trigger Stop Losses and create additional internal revenue during periods where they cannot hedge their own risk.