A-book and B-book

When you open a trade with a retail broker, the broker has to decide what to do with the risk. The industry describes the two basic choices as books.

• A-book: the broker offsets your trade with an outside liquidity provider, such as a bank or a larger non-bank market maker. It earns from the spread mark-up or commission and has little direct interest in whether you win or lose.
• B-book: the broker keeps the trade on its own books and is your counterparty. If you lose, the broker gains; if you win, the broker pays out of its own pocket.

Most brokers run a hybrid. A common pattern is to B-book small, short-term accounts (which, as a group, tend to lose money) and A-book larger or consistently profitable clients whose risk the broker would rather not hold.

Why it matters

B-booking is legal and is how market maker brokers have always worked. The issue is the conflict of interest it creates: a broker that profits from client losses has a reason to price, execute or handle disputes in its own favour. Regulation in the EU and UK requires firms to manage that conflict, apply best execution and treat clients fairly.

A common misconception

An account labelled "ECN" or "STP" is not proof that every order is A-booked. Marketing labels are not regulated terms. Read the firm's order execution policy and conflicts of interest policy, and look at how it handles slippage in both directions.

Our guide to how forex brokers make money covers the business models in more depth.