When a retail client submits a forex or CFD order, the broker can keep the resulting market exposure internally, offset it with other clients, or hedge some or all of it with an external counterparty. The terms A-book and B-book describe those risk-management choices.
They do not divide every broker into “good” and “bad.” A-book execution can be expensive or poor, and a regulated broker can internalize orders under disclosed rules. The client should evaluate the legal entity, pricing, fills, conflicts and withdrawal behavior.
What is an A-book broker?
In an A-book model, the broker generally transfers or offsets client market risk externally. It may send an order or aggregate exposure to a bank, non-bank liquidity provider, prime broker or venue.
The simplified flow is:
- Client places a trade.
- Broker executes the client-facing contract.
- Broker creates an offsetting external hedge.
- Broker earns through spread markup, commission or another disclosed fee.
The external hedge may not match each client trade one-for-one. A broker can aggregate positions and hedge net exposure at intervals. Contract terms determine whether it acts as agent, principal or another capacity for the client transaction.
What is a B-book broker?
In a B-book model, the broker internalizes client market risk rather than immediately offsetting all of it externally. For an over-the-counter contract, the broker is often the client’s contractual counterparty.
If a client’s position loses and was not hedged, the broker’s corresponding market result may benefit, before its costs and other exposures. If the client wins, the broker must pay that result and may lose on the unhedged position.
The statement “B-book brokers only profit when clients lose” is too simple. Brokers can also earn spread and fees, offset clients against each other, hedge part of net risk and carry operational, credit and market costs. The conflict remains relevant because the broker can have an economic interest opposite an unhedged client.
Most execution models are hybrid
A hybrid broker can:
- Internalize offsetting client positions.
- Hedge net currency exposure above a limit.
- Route particular instruments externally.
- Change hedging based on liquidity or market conditions.
- Use several providers and execution methods.
Risk decisions can be made at account, symbol or portfolio level. Marketing a “raw” or “ECN” account does not establish exactly how every trade is handled.
Ask for the formal execution and conflicts policy rather than inferring the book model from a platform name.
A-book vs B-book comparison
| Feature | A-book model | B-book model |
|---|---|---|
| Market risk | Offset externally | Internalized fully or partly |
| External hedge | Common | Not required for every exposure |
| Revenue | Often spread or commission | Spread or fees plus internalized net trading result |
| Key dependency | Liquidity-provider pricing and execution | Broker risk management and conflict controls |
| Possible issue | Rejection, markup, latency or provider slippage | Incentive conflict or poor internal dealing |
Both models can experience outages, slippage, wider spread and operational failure. Neither label guarantees solvency or client-money protection.
Principal, agent and riskless-principal language
Client agreements may use legal terms instead of A-book and B-book.
- Principal: the firm is counterparty to the client contract.
- Agent: the firm arranges an execution for the client, depending on jurisdiction and product.
- Matched or riskless principal: the firm faces the client and creates a corresponding external transaction.
Do not assume “principal” automatically means all risk is B-booked or manipulated. Read how prices are sourced, orders executed and conflicts managed.
The exact meaning depends on the jurisdiction and contract. For legal interpretation, seek qualified advice.
Does internalization mean price manipulation?
No. Internalization creates a potential conflict; it does not prove abusive conduct.
Investigate with evidence:
- Compare the broker’s bid and ask with several independent reference feeds at the same timestamp.
- Record requested, filled and rejected orders.
- Measure positive and negative slippage.
- Check whether stops and limits follow the disclosed trigger price.
- Review spread around rollover and scheduled events.
- Preserve server logs and statements before filing a complaint.
Price feeds can differ legitimately because spot forex is decentralized and brokers use different providers, markups and timestamps. A single different candle is not proof of manipulation.
See why broker forex price feeds differ for a structured comparison.
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Get RelicusRoad ProWhat “STP” and “ECN” do not prove
Straight-through processing and electronic communication network are widely used marketing terms. They may describe real technology or venue relationships, but the label alone does not show:
- Which entity holds the account.
- Whether the broker is principal to the contract.
- Whether every order is externally hedged.
- Which liquidity providers are used.
- The markup and commission.
- How slippage and rejections are handled.
Ask for current documents and compare them with account behavior.
Verify the legal broker entity first
A brand can operate through several companies. The relevant one is named in the account agreement and funding instructions.
Check:
- Legal name and registered address.
- Regulator and licence or registration number.
- Whether the offered product is covered for your country.
- Client-money and insolvency arrangements.
- Complaint, compensation and dispute process.
- Negative-balance and margin-closeout terms.
- Website domain warnings or cloned-firm notices.
Use the regulator’s own register. Do not trust a badge or link supplied by the broker without matching domains and contact details. The broker selection guide provides a complete jurisdiction-first process.
Read three broker documents
Execution policy
Look for price sources, execution factors, order types, aggregation, rejection, slippage and conditions under which trading can be suspended.
Conflicts policy
Look for the firm’s role as counterparty, internalization, related parties, remuneration and how conflicts are prevented or disclosed.
Client agreement
Look for the contracting entity, governing law, margin, stop-out, negative balances, account termination and complaint deadlines.
Save dated copies. Website summaries can omit exceptions contained in the agreement.
Measure execution with a small test
If the broker passes the legal and document review, test the smallest practical account and position.
Record:
- Spread during the actual strategy hours.
- Fill price relative to requested price.
- Positive and negative slippage.
- Commission, swap and conversion.
- Limit-order price improvement, if any.
- Rejected and requoted orders.
- Platform availability.
- Deposit and withdrawal times and fees.
A few trades cannot prove long-term quality, but they can expose large differences from advertised conditions. Do not increase the balance until a small withdrawal is completed.
Questions to ask a broker
- Are you principal or agent for this product?
- Do you internalize client trades?
- Is exposure hedged individually or on a net basis?
- Which policy explains liquidity and execution?
- Can orders receive both positive and negative slippage?
- Which price triggers stops and margin closeout?
- Does the account type change the execution model?
- Which legal entity receives my deposit?
An incomplete answer is not proof of misconduct, but it is a reason to avoid making assumptions and to compare another provider.
Final takeaway
An A-book broker generally offsets market risk externally. A B-book broker internalizes some or all of it. Many brokers combine both methods, and the retail label may not describe every order.
Do not choose a broker from the book model alone. Verify the legal entity, read execution and conflicts policies, measure real fills and costs, and test withdrawals. The evidence that affects a client is how the contract and execution work in practice.