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Forex Trading Blog Details

Risk Management - Forex Brokers
  • 13 Oct
  • 2015

Risk Management - Forex Brokers

Recommended: Mt4 Big Data API

The Risk Management is the most important part of any Forex Broker and we will discuss various techniques that can be used by the brokers.

Market Making: The broker takes all the risk upon himself and is always a counter party for all trades that takes place. Any loss from the trader is Broker’s gain. This can work with small set of deposits but with larger deposits, it is very risky.

ECN: Here Broker offers direct trading to client on the real market thru Liquid Providers. This is least risky risk management technique and broker earns thru spread markup. The ECN brokers execute the trade at Market price.

STP: This is hybrid between Market Making and ECN. Here broker manages both A Book and B Book and depending on his risk taking ability and other parameters, passes on some trades to LP and manages others at his own risk. This is a balanced way of managing risk and with correct sets of policies, a broker can earn in two ways – one when the trades loses a trade and secondly by not losing money to successful trader.

The ECN and STP requires accounts to be opened with LPs with min of USD 10000 to get their API’s.

One more way to manage risk by small to medium brokers is to do market making but at same time copying the trades, that are not fully hedged in the system, to an external broker, thus reducing the risk of the broker. Also, the broker can manage this with a normal trading account with a LP.

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