What is A book and B book in forex trading?

What’s in book, you might ask? Well, no matter what market you trade, fact is that for most investors and traders, you can only get access to the financial market through your broker. Your broker, in turn has an option to execute your trade in one of the many ways.

Books, in trading are commonly used in order to mitigate risk. The term book is similar to a book used in accounting, such as ledger. The ledger keeps tracks of the cashflow. An accountant, in most cases has the ask of ensuring that the books are always balanced.

The term balanced simply means that the assets and the liabilities always match up.

In trading terminology, books are no different. Thus, a brokerage or a hedge fund, or even an investment for that matter maintain a number of books. High risk assets are often clubbed into one book, while other assets are clubbed into a different book.

From a forex terminology, A book and B book are mostly commonly used terms.

 


What is an A book?

An A book is a term or rather a book or a portfolio where the trades are executed STP (straight through processing) and directly onto the prime brokerage. In an A-Book, your trades are untouched and executed against the liquidity pool.

In brokerage terms, one can draw parallels to an A book as an ECN (electronic communication network) type of execution.

There are of course advantages and disadvantages. For one, with an A-book, you are most likely to encounter variable spreads. Chances are that in most cases, the broker will also add a market up to these spreads, on top of charging you commissions.

In an ECN model or an A-book, brokerages charge you a commission for a round trip lot. This means that every time you open and close a trade, a commission is charged. Most brokers tout this as a better way to trade and take advantage of the misconceptions of a market maker model.

The point to understand is that with an A-book your order is executed only if it is matched with a counterparty buyer or a seller. When your order doesn’t match, chances are that it will either remain open or you will be matched at the best price available (which might not always be the price you wanted).


What is a B book?

A B-book on the other hand is a portfolio or a book where trades are matched in-house. Think of the B-book as a market maker model. There is a lot of misconception about B-book, also known as B-booking. This is the market maker model and the general prevailing notion is that the brokerage trades against you.

In fact, if you read a lot of articles, you will come across texts such as the broker taking opposite positions against you. This is incorrect. In a B-book, the broker’s main goal is to act as a market maker. A forex broker does not simply take a position against you and wait for you to lose.

Rather, once a forex broker takes a counter position against you in the B-book, it is often offset or passed over to another trader. Of course, the brokerage makes money by passing on your order to another trader at a different price, which is where they make money.

Next stop at the 2021 low at 125.08

 

  • EUR/JPY plummets well below the 127.00 mark, or new 2022 low.
  • The next target of note comes at the 2021 low near 125.00.

EUR/JPY accelerates losses to the low-126.00s following the collapse in the single currency and the persistent risk aversion.

The continuation of the downtrend in the cross is expected to meet the next support of note at the 2021 low at 125.08 (January 18). If cleared, then the focus of attention should shift to 122.84 (low November 19 2020) ahead of the October 2020 low at 121.61 (October 30).

While below the 200-day SMA, today at 130.21, the outlook for the cross is expected to remain negative.

EUR/JPY daily chart

EUR/JPY

US Dollar Index Price Analysis: Door open to… 100.00?

 

  • DXY quickly surpasses the 98.00 mark on Friday.
  • Next on the upside comes the triple-digit barrier.

DXY clinches fresh cycle tops well north of the 98.00 mark at the end of the week.

There is scope for the continuation of the uptrend in the very near term. Against that, there are no hurdles of relevance until the the 99.97 level (May 25 2020 high), which precedes the psychological 100.00 mark.

The short-term bullish stance remains supported by the 5-month line, today near 95.60, while the longer-term outlook for the dollar is seen as constructive above the 200-day SMA at 94.08.

DXY daily chart

 

NZD/USD sticks to gains near multi-week high, just below 100-DMA ahead of NFP

 

  • NZD/USD attracted fresh buying on Friday and rallied to the highest level since January 14.
  • Strong rally in commodity prices continued acting as a tailwind for the resources-linked kiwi.
  • Geopolitical tensions boosted the safe-haven USD, though did little to hinder the momentum.
  • Traders now eye NFP for a fresh impetus, though the focus remains on the Russia-Ukraine saga.

The NZD/USD pair maintained its bid tone heading into the North American session and was last seen trading around the 0.6825 region, just a few pips below the seven-week high.

Following an early slide to the 0.6770-0.6765 region, the NZD/USD pair attracted fresh buying on Friday and prolonged its bullish trajectory witnessed over the past one month or so. The New Zealand dollar continued drawing support from the recent monster gains in commodity prices that followed Russia’s invasion of Ukraine.

The worsening situation in Ukraine led to a fresh surge in prices for raw materials and contributed to the relative outperformance of resources-linked currencies, including the kiwi. In the latest development, Russian military forces seized Ukraine’s Zaporizhzhia nuclear power plant – the largest of its kind in Europe.

The early bombardment by Russian troops on Friday raised fears of an environmental catastrophe and triggered a fresh wave of the global risk-aversion traders. This, in turn, pushed the safe-haven US dollar to the highest level since June 2020, albeit did little to prompt any selling around the perceived riskier kiwi.

Bulls, however, took a breather just ahead of mid-0.6800s, or a resistance marked by the 100-day SMA resistance and preferred to wait for the release of the US monthly jobs report (NFP). The key focus, however, will remain on developments surrounding the Russia-Ukraine saga, which should continue to infuse volatility around the NZD/USD pair.

Technical levels to watch

EUR/USD weaker, drops to 1.0930 post-NFP

 

  • EUR/USD keeps the bearish note intact below 1.1000. 
  • US Non-farm Payrolls rose by 678K jobs in February.
  • The unemployment rate ticked lower to 3.8%.

The selling interest around the single currency remains well and sound at the end of the week and drags EUR/USD to the 1.0930 area in the wake of US NFP.

EUR/USD levels to watch

So far, spot is losing 1.13% at 1.0940 and faces the next up barrier at 1.1192 (10-day SMA) followed by 1.1309 (55-day SMA) and finally 1.1395 (weekly high Feb.16). On the other hand, a drop below 1.0924 (2022 low Mar.4) would target 1.0900 (round level) en route to 1.0870 (low May 25 2020).

US Non-farm Payrolls rises by 678K in February versus median forecast for 400K gain

 

  • NFP was much stronger than expected at 678K in February versus 400K forecasts. 
  • Measures of labour market slack were also generally strong, though wage growth metrics were much weaker than forecast.
  • The US Dollar has nonetheless been striding higher in wake of the release. 

Nonfarm Payrolls (NFP) rose by 678K in February, well above the median economist forecast for a 400K rise, data published by the US Bureau of Labor Statistics showed on Friday. January’s NFP number also saw a small upwards revision to 481K from 467K. The much larger than expected headline beat was driven by a much larger than expected 654K rise in Private Nonfarm Payrolls versus the expected 378K gain, with January’s number also revised slightly higher to 448K from 444K. Manufacturing Payrolls rise 36K on the month, well above the expected 20K gain and much higher than January’s 16K gain that had been revised up from 13K. 

Measures of labor were generally stronger than expected. The Unemployment Rate fell to 3.8% from 4.0%, more than the expected drop to 3.9% in January. While the U6 Underemployment Rate actually rose to 7.2% from 7.1% in January, the Participation Rate also rose to 62.3% from 62.2%, leaving it just 1.1% below February 2020 levels. 

Whilst the headline and labour market slack numbers pertaining to job creation were strong, the inflation-concerned Fed will likely be relieved at the latest wage growth metrics. Average Hourly Earnings (AHE) rose at a pace of 5.1% YoY in February, elevated, but well below expectations for a rise to 5.8% from 5.5% in January, with last month’s AHE reading revised lower from 5.7%. MoM, AHE came in at 0.0% versus median economist forecasts for 0.5%, a deceleration from January’s 0.6% MoM reading, which had been revised lower from 0.7%. 

Market Reaction

Weak wage growth metrics have been shrugged off by the US dollar bulls, who have regained control in wake of the much stronger than forecast headline NFP print, combined with decent labour market slack metrics. The Dollar Index is rising towards the 98.80s from around 97.60 prior to the data and is at session highs with EUR/USD on the verge of collapsing below 1.0900 and GBP/USD now on under 1.3250. USD/JPY has been choppier and less reaction and stayed in the 115.30-115.45 area. 

In terms of the reaction in other asset classes, S&P 500 futures saw a kneejerk spike higher, perhaps amid an interpretation that softer wage growth metrics mean less pressure on the Fed to tighten policy as quickly this year (though this would be at odds with the FX market reaction). E-mini futures jumped into the 4430-4440 region from pre-data levels in the 4420s. Bonds were choppy and saw a two-way reaction, with the US 10-year yield swinging between post-data lows at 1.76% and highs at 1.81%, though now seem to be pushing back slightly lower again, perhaps on the soft wage growth figures. 

Spot gold (XAU/USD) isn’t much moved and continues to trade in the mid-$1940s amid continued struggles when rallying towards $1950. 

Stellar Nonfarm Payrolls beat keeps US dollar bid and XAU hamstrung

 

  • US February Nonfarm payrolls 678K vs 400K estimate.
  • US Unemployment Rate Feb: 3.8% (est 3.9%; prev 4.0%).
  • US dollar backs off from session highs on kee-jerk, then rallies to a fresh session high, gold price hamstrung. 

The US employment report in Nonfarm Payrolls has been released, albeit taking a backseat to the fundamental crisis in Russia’s invasion of Ukraine.

With a wave of Omicron COVID-19 variant infections significantly diminished, the market was expecting another strong jobs number. This would be underpinning the certainty of a rate hike from the US Federal Reserve that meets this month. 

The data arrived as follows:

  • US Change in Nonfarm Payrolls Feb: 678K (est 423K; prev 467K).
  • US Unemployment Rate Feb: 3.8% (est 3.9%; prev 4.0%).
  • US Average Hourly Earnings (Y/Y) Feb: 5.1% (est 5.8%; prev 5.7%).
  • US Average Hourly Earnings (M/M) Feb: 0.0% (est 0.5%; prev 0.7%).

The data has boosted the US dollar that was already at a fresh weekly high of 98.6320 prior to the release, as measured against a basket of currencies in the DXY index. After an initial blip to the downside on the release in the knee-jerk, it has since moved to make a higher high of 98.68 at the time of writing. 

However, gold prices also rose on Friday, eyeing their best weekly gain since May 2021. Spot gold edged up to $1,950s in an up and down Asian session after news of a fire near a Ukraine nuclear facility following fighting with Russian forces. Investors sought refuge in safe-haven US dollar, US Treasuries, sending yields on benchmark 10-year yields lower to 1.7000% as well as gold. 

Asian equities and the euro slumped on Friday and the heightened investor fears about the escalating conflict sent oil prices higher. A fire broke out in a training building near the Zaporizhzhia nuclear power plant, the largest of its kind in Europe. The fire was extinguished and while that has helped ease some of the initial panics that hit markets in Asia, investors remain extremely anxious about the conflict which can help to support gold prices. 

In Europe, the STOXX index of 50 companies remains in the red and down by some 3% at the time of writing, hitting a new low for the year as the benchmark eyed correction territory, meaning down 10% from its highs. The MSCI All Country stocks index shed 0.6% to 686 points, down about 10% for the year.

In currency markets, the euro lost further ground and was set for its worst week versus the dollar in nearly two years. EUR/CHF is less than 50 pips away from parity. The prospect of sustained high commodity prices continued to drag on expectations of European economic growth which is underpinning the US dollar which is a headwind for gold prices. 

The price has reached a prior resistance level on the hourly chart and is being bought from there, near a 61.8% Fibonacci retracement level. Further demand would be expected to see the price of gold extend higher in the forthcoming hours and for the open sessions next week. 

GBP/USD drops to fresh 2022 low, further below mid-1.3200s on upbeat NFP report

 

  • GBP/USD witnessed heavy selling for the second successive day amid a blowout USD rally.
  • The worsening situation in Ukraine, upbeat NFP report continued underpinning the USD.
  • Technical selling below the 1.3270 area aggravated the bearish pressure around the pair.

The GBP/USD pair continued lowing ground through the early North American session and weakened further below mid-1.3200s in reaction to upbeat US monthly jobs report. The pair was last seen trading around the 1.3240-1.3235 region, down nearly 0.80% for the day.

The pair added to the overnight losses and continued losing ground for the second successive day on Friday amid a blowout US dollar rally, bolstered by the global flight to safety. The Russian attack on Ukraine’s Zaporizhzhia nuclear power plant – the largest of its kind in Europe – raised fears of an environmental catastrophe. This, in turn, unnerved investors and boosted demand for traditional safe-haven assets.

The stronger USD momentum got an additional boost from better-than-expected US employment details. In fact, the headline NFP showed that the US economy added 678K new jobs in February, smashing market expectations for 400K. Adding to this, the previous month’s reading was revised higher to 481K from 467K reported earlier. Moreover, the unemployment rate fell more than anticipated, to 3.8% from 4.0% in January.

The greenback shot to its highest level since May 2020 and was seen as a key factor that dragged the GBP/USD pair lower. Apart from this, the ongoing downward trajectory could further be attributed to some technical selling below the 1.3270 support zone. This now seems to have set the stage for a further near-term depreciating move amid the worsening situation in Ukraine.

Technical levels to watch

 

Stellar Nonfarm Payrolls beat keeps US dollar bid and XAU hamstrung

 

  • US February Nonfarm payrolls 678K vs 400K estimate.
  • US Unemployment Rate Feb: 3.8% (est 3.9%; prev 4.0%).
  • US dollar backs off from session highs on kee-jerk, then rallies to a fresh session high, gold price hamstrung. 

The US employment report in Nonfarm Payrolls has been released, albeit taking a backseat to the fundamental crisis in Russia’s invasion of Ukraine.

With a wave of Omicron COVID-19 variant infections significantly diminished, the market was expecting another strong jobs number. This would be underpinning the certainty of a rate hike from the US Federal Reserve that meets this month. 

The data arrived as follows:

  • US Change in Nonfarm Payrolls Feb: 678K (est 423K; prev 467K).
  • US Unemployment Rate Feb: 3.8% (est 3.9%; prev 4.0%).
  • US Average Hourly Earnings (Y/Y) Feb: 5.1% (est 5.8%; prev 5.7%).
  • US Average Hourly Earnings (M/M) Feb: 0.0% (est 0.5%; prev 0.7%).

The data has boosted the US dollar that was already at a fresh weekly high of 98.6320 prior to the release, as measured against a basket of currencies in the DXY index. After an initial blip to the downside on the release in the knee-jerk, it has since moved to make a higher high of 98.68 at the time of writing. 

However, gold prices also rose on Friday, eyeing their best weekly gain since May 2021. Spot gold edged up to $1,950s in an up and down Asian session after news of a fire near a Ukraine nuclear facility following fighting with Russian forces. Investors sought refuge in safe-haven US dollar, US Treasuries, sending yields on benchmark 10-year yields lower to 1.7000% as well as gold. 

Asian equities and the euro slumped on Friday and the heightened investor fears about the escalating conflict sent oil prices higher. A fire broke out in a training building near the Zaporizhzhia nuclear power plant, the largest of its kind in Europe. The fire was extinguished and while that has helped ease some of the initial panics that hit markets in Asia, investors remain extremely anxious about the conflict which can help to support gold prices. 

In Europe, the STOXX index of 50 companies remains in the red and down by some 3% at the time of writing, hitting a new low for the year as the benchmark eyed correction territory, meaning down 10% from its highs. The MSCI All Country stocks index shed 0.6% to 686 points, down about 10% for the year.

In currency markets, the euro lost further ground and was set for its worst week versus the dollar in nearly two years. EUR/CHF is less than 50 pips away from parity. The prospect of sustained high commodity prices continued to drag on expectations of European economic growth which is underpinning the US dollar which is a headwind for gold prices. 

Gold technical analysis

The price has reached a prior resistance level on the hourly chart and is being bought from there, near a 61.8% Fibonacci retracement level. Further demand would be expected to see the price of gold extend higher in the forthcoming hours and for the open sessions next week. 

Jobs numbers have been quite good for some time, labour market in a very solid position

 Chicago Fed President and FOMC member Charles Evans said on Friday, shortly after the release of official US labour market data, that the jobs numbers have been quite good for some time and that the labour market is in a very good position, reported Reuters citing an interview on CNBC. There is a tremendous amount of uncertainty regarding Russia and Ukraine, Evans said. 

The latest jobs report doesn’t really change anything that Fed Chair Jerome Powell is positioning for, Evans continued, a remark that might be interpreted as Evans encouraging markets not to start rebuilding expectations for a 50bps rate hike later in the month. Recall that Powell earlier in the week signalled a 25bps hike. With inflationary pressures, we need to be moving towards a more neutral monetary policy position, Evans added, saying that we need to be within striking distance of neutral if that’s necessary. 

This is not the 1970s of how inflation got out of hand, he continued, though the Fed needs to be close enough to neutral by the end of the year so that we can deal adequately with inflation. The recent commodity price rise reinforces “unhelpful” tendencies in prices, Evans continued, adding that by the end of the year, we will have a better fix on how far we need to go on rates. 

I don’t think we will see nearly as restrictive setting of monetary policy as we did in the 90s, the Chicago Fed President went on, remarking that doing 25bps of rate hikes at each meeting may be more than essential.