Broker, LP, prime broker: who actually holds your trade
A retail order passes through more hands than most traders realise. Once you can see the chain, spreads, requotes and slippage stop feeling random.
You click buy on XAUUSD. A position appears on your screen in under a second. It feels like you bought gold. In almost every retail case, you did not — you entered a contract with your broker, and what happened next depended entirely on how that broker chose to handle it.
This is not a scandal. It is simply how the retail structure works. But traders who do not understand the chain end up blaming their strategy for problems that were actually execution, or blaming the broker for things no broker controls.
The chain, top to bottom
Wholesale currency and metals trading is a tiered market. Credit decides who can face whom directly, and almost nobody in retail has the balance sheet to sit at the top table.
| Tier | Who | Role |
|---|---|---|
| 1 | Interbank / Tier-1 banks | Genuine market makers in size |
| 2 | Prime broker | Extends credit, clears, aggregates |
| 3 | Liquidity provider | Streams quotes to brokers |
| 4 | Retail broker | Your counterparty, or your router |
| 5 | You | The order |
What the liquidity provider actually does
A liquidity provider streams two-way prices — a bid and an ask — that a broker can trade on. Some LPs are banks. Many are non-bank market makers running their own pricing engines. They are not doing your broker a favour: they make money on the spread and on flow they can internalise profitably.
This matters because LPs price flow differently depending on who is sending it. Consistently profitable, fast, short-horizon flow is expensive to face. Slower retail flow is not. A broker whose clients are largely long-term losers can get better pricing than one sending sharp flow. That asymmetry is a real part of why spreads differ between brokers offering apparently identical accounts.
Why a prime broker exists at all
To trade directly with a Tier-1 bank you need a credit relationship with that bank. Setting up bilateral credit lines with a dozen banks is impractical for most firms. A prime broker solves this: it extends its own credit, faces the banks on your behalf, and gives you one relationship, one margin pool and one settlement point.
Prime brokers have minimums that put them out of reach for small firms — historically tens of millions in equity. This created the middle tier you will hear called a prime-of-prime: a firm that has a real prime broker relationship and resells access in smaller units to brokers who could never qualify directly.
When a broker advertises "Tier-1 liquidity", it is usually reaching it through a prime-of-prime, not sitting on a bank's own desk. That is not dishonest, but it is a longer chain, and every link adds latency and a small markup.
A-book, B-book, and the honest version of both
Once your order reaches the broker, there are two things it can do with it.
A-book
The broker passes your trade through to an LP and hedges its own exposure. It earns from commission or a markup on the spread. Your profit does not cost it anything — its interest is in volume and in you surviving to keep trading.
B-book
The broker takes the other side internally and does not hedge. It earns when you lose. This is legal and disclosed in most jurisdictions, and it is not automatically predatory — internalising two clients on opposite sides is genuinely more efficient than sending both to an LP. But the incentive conflict is real and worth knowing about.
Most brokers run a hybrid book: clients are profiled, and flow is routed based on that profile. Profitable clients get pushed to the A-book where the broker is flat; the rest stay internal. If your execution quality noticeably changed after a strong month, this is the likely mechanism.
What this explains about your fills
- Spread widening at news. LPs pull quotes when they cannot price risk. Your broker cannot show a tighter spread than it is being shown.
- Slippage on stops. A stop is a market order once triggered. In a fast tape, the next available price may be several pips away. This is normal; consistently one-directional slippage is not.
- Requotes. More common on instant-execution accounts, where the broker must confirm the price is still available.
- Different spreads on identical account types. Usually the LP relationship and flow profile, not a promotion.
You cannot control execution. You can control whether your strategy needs good execution to survive.
What to actually check
Rather than trusting marketing language, look at things that are verifiable:
- Regulator and entity. Which legal entity is your account with? Groups often have several, with very different protections.
- Client fund segregation and, where offered, compensation scheme coverage.
- Published execution statistics — fill rates, average slippage, rejection rates.
- Your own log. Record intended vs filled price for fifty trades. Slippage should be roughly symmetrical.
That last one is worth more than any review site. It is your data, from your account, at your trade sizes.
Why we teach this early
Traders who do not understand the chain build strategies that depend on conditions retail execution cannot deliver — one-pip scalps, stops parked inside the spread, systems that assume a fill at the exact touched price. Understanding where your order goes tells you which strategies are realistic for the account you actually have.
If you want the risk side of this, read position sizing is the only edge you fully control. If you are automating, execution assumptions are also the fastest way to a false backtest — see why your backtest lied to you.
This article explains market structure for educational purposes. It is not investment advice, a broker recommendation, or a solicitation to trade. Broker regulations and permitted activity differ by country — Indian residents in particular should confirm what is permitted under FEMA and applicable RBI and SEBI rules before opening any overseas account.