Home > Market Maker vs Liquidity Provider: what is the difference?

Market Maker vs Liquidity Provider: what is the difference?

24 August 2021, 15:08

Market Maker broker or B-book takes the other side of their customer’s trades and does not pass the orders to LP. In fact, some Market Makers also gain commissions by providing liquidity themselves to their clients’ companies.

What this means is that Forex traders are trading against the broker, and any profits made by the trader equate to a loss incurred by the Forex brokerage. The brokerage’s potential to make a profit is high, so many companies pick up this type.

Nevertheless, brokerages set up as B-book dealers bring high costs. These include setting up trading desks and algorithmic trading, which automatically take the other side of the customer’s trades. These costs must be held from the profits.

Liquidity providers, or A-book, is an easier method to set up a brokerage, and as the broker is just the intermediary, it allows the trader to access the interbank market by sending the orders to liquidity providers.

The best bid-ask spread prevails and will be transmitted to the customers. This type is also known as A-book processing or Straight Through Processing (STP), whereby the broker earns a fee based on the volume its clients generate.

A hybrid model is also available within the industry. You can check out its trading conditions to identify the company and its type.