Agency Model vs Principal Model

The two models describe who your contract is actually with. Under an agency model the firm arranges a transaction between you and a third party and never becomes the counterparty; it is paid a commission for the arranging, and the price you receive is the price the third party gave. Under a principal model the firm deals with you directly, its own name sits on the other side of the contract, and its revenue can come from the difference between the price it quotes you and the price at which it covers itself. Retail forex and CFD trading is overwhelmingly a principal business, because a CFD is a contract with the firm rather than an instrument traded on a market. That is not a defect, but it changes what you are relying on. An agency client depends on the venue's price and on the firm's diligence in choosing that venue; a principal client also depends on the firm remaining solvent and pricing fairly. Which model applies to each instrument is set out in the client agreement and the execution policy.