A-Book vs B-Book
A-Book and B-Book describe how a broker manages the risk from client orders. A-Book means the broker passes risk to external LPs; B-Book means the broker retains it. This distinction defines the fundamental alignment (or misalignment) of interests between broker and client.
| Dimension | A-Book | B-Book |
|---|---|---|
| Risk management | Fully hedged with external LPs | Broker retains client risk on its own book |
| Broker profit source | Commission and/or markup on every trade | Client losses + spread capture |
| Broker wants client to... | Trade more (generates more commission) | Lose (generates direct profit) |
| LP relationships | Required — multiple LPs for competitive pricing | Not required — broker is the market maker |
| Execution cost transparency | Fully transparent — raw spread + commission | Opaque — cost hidden in spread and execution quality |
| Scalability | Revenue scales linearly with volume | Revenue is volatile, dependent on client loss rates |
| Regulatory risk | Lower — no conflict to regulate | Higher — requires conflict management and disclosure |
| Client segmentation | Not needed — all flow treated equally | Common — profitable clients may be A-booked to reduce risk |
Risk management
A-Book
Fully hedged with external LPs
B-Book
Broker retains client risk on its own book
Broker profit source
A-Book
Commission and/or markup on every trade
B-Book
Client losses + spread capture
Broker wants client to...
A-Book
Trade more (generates more commission)
B-Book
Lose (generates direct profit)
LP relationships
A-Book
Required — multiple LPs for competitive pricing
B-Book
Not required — broker is the market maker
Execution cost transparency
A-Book
Fully transparent — raw spread + commission
B-Book
Opaque — cost hidden in spread and execution quality
Scalability
A-Book
Revenue scales linearly with volume
B-Book
Revenue is volatile, dependent on client loss rates
Regulatory risk
A-Book
Lower — no conflict to regulate
B-Book
Higher — requires conflict management and disclosure
Client segmentation
A-Book
Not needed — all flow treated equally
B-Book
Common — profitable clients may be A-booked to reduce risk
What "Book" Means
In trading, "the book" refers to the broker's position ledger. A-Book means the broker's book is flat — every client position is offset with an external LP position. The broker holds no net market exposure. B-Book means the broker's book carries unhedged client positions. The broker is effectively betting against clients. Most brokers globally operate a "hybrid" model — A-booking some flow and B-booking the rest.
The Economics
A-Book brokers earn predictable, linear revenue: more trades mean more commissions. Their incentive is to make clients trade more, which aligns with helping clients succeed (successful traders trade more). B-Book brokers earn unpredictable revenue dependent on client losses. Short-term, B-booking is more profitable when clients lose. Long-term, it creates churn and reputation risk. The industry trend is toward A-Book as brokers realize sustainable revenue requires sustainable clients.
How to Tell Which Model Your Broker Uses
Direct disclosure is the best signal: does the broker state its execution model in regulatory filings? Indirect indicators include: commission-based pricing (A-Book signal), fixed spreads with no commission (B-Book signal), published execution metrics (A-Book signal), requotes or dealing desk intervention (B-Book signal). The most reliable test is slippage symmetry — genuine A-Book execution produces roughly equal positive and negative slippage.
Verdict
A-Book execution aligns broker and client interests by design. B-Book creates structural conflict. While hybrid models are common, the percentage of A-booked flow is a key differentiator. Traders should seek brokers that disclose their execution model and provide verifiable execution quality data.