A/B risk tool or how to manage broker risks effectively
Author: Ivan Egorov
Brokers who need to process trading requests from traders have numerous options available to them on the market: auto dealers, bridges, gateways, and many more. At TFB, we see a growing number of requests from A/B brokers who are looking for an all-in-one solution that would not clog the server with multiple plugin installations, consequently slowing down its performance.
Such a solution already exists, and it is the Trade Processor – liquidity bridging software that combines all the types of trade request processing in one:
- it is compatible with MT4/MT5 and other trading platforms
- it combines market making order pool and bridge/gateway to liquidity
- it allows connecting to multiple liquidity providers
- it lets you switch trades between different LPs or even books on-the-fly
Let’s talk about each of the trading flow management tools in more detail.
A/B Risk tool
It’s hardly a secret that markets change rapidly, and one unfortunate social media post can cause madness. To confront the rapidly-evolving world around us, brokers need to have a system in place to adapt to reality quickly.
A/B Risk tool gives brokers an opportunity to temporarily hedge their risks with liquidity providers of their choice, or vice versa, to capitalize on the rapid market movement by switching a trade from A-book to B-Book.
Let’s imagine a situation on the market: the charts were quite flat for a few hours, but suddenly president X tweeted something controversial, and that post had an immediate effect. How do we minimize risks and probability of high losses on B-book in that situation?
The easiest way would be to temporarily switch B-book positions to LP to hedge the risks and wait until the market slows down and becomes less volatile.
Trader A opens a BUY position on A-book, the market is growing. At some point, a dealer noticed a trend reversal candle and switched the position from A-book to B-book until the new trend reversal event will happen. Then the dealer can switch the position back to LP.
Many brokerage companies don’t have enough time and resources to monitor clients’ trading activity 24/7. Others simply want to minimize the risk of human error.
At TFB, we’ve implemented a tool for all brokers looking to automate their dealing processes. The name of the tool is Auto Switch, and it allows to switch trades automatically in accordance with one of the pre-defined triggers:
- Trader’s floating PnL
- Number in points
- Volume x points
- Percent of balance
With the help of the tool, dealers can easily create a rule to switch the position to LP automatically once its PnL reaches a specific percentage of the trader’s balance, or the instrument price is changed by a specific number of points. They can also set up another trigger to return the position.
There is one more tool that can make the life of every broker easier – it’s called Volume Transfer, and it allows brokers to move volumes from one LP to another permanently.
A/B Risk tool and Auto Switch tool are designed to switch positions from one book to another temporarily and to maximize profits or limit risks. Volume Transfer, in turn, can be used to move positions between different LPs to balance the exposure, or just switch the positions to the new LP irrevocably.
Now here is no need to close all open positions of the trader if you want to move the account from B-book to A-book group. Brokers can use the Volume Transfer tool to move trader’s B-book positions to LP and switch the group simultaneously.
We hope that this article gave you a helpful insight into what tools are out there to minimize your brokerage risks, and to simply make your business processes easier and more enjoyable.
We would like to hear from you! Please reach out to us if you have any questions, queries, or if you’d like to get a demo of Trade Processor and try for yourself to switch the tools in the demo environment.
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