A-Book vs B-Book vs Hybrid: How Brokers Actually Handle Your Flow

The one-line version

A-book = the broker passes your trade through to a liquidity provider and earns a mark-up or commission. B-book = the broker takes the other side of your trade internally and earns (or loses) the P&L. Hybrid = the broker decides per-client or per-trade which book to use, based on a risk model.

All three are legal and standard practice at regulated brokerages. None of them are inherently "good" or "evil" — they're risk-management choices.

A-book in detail (Straight-Through Processing)

When a client clicks Buy, the broker simultaneously hits the bid at a tier-1 liquidity provider (LP) — a bank, prime-of-prime, or aggregator. The broker is flat: the client's P&L is the LP's P&L, mirrored.

How the broker makes money:

A small mark-up added to the raw LP spread (e.g. raw 0.1 pip becomes 0.6 pip to the client).
A commission per lot on ECN-style accounts.
Sometimes both.

What clients get: tight spreads, real market depth, real slippage in both directions, and zero conflict of interest with the broker. Execution speed is bounded by LP latency.

What the broker carries: credit risk against the LP, margin requirements at the LP, and operational cost of FIX sessions and aggregation. Volume is required to be profitable.

B-book in detail (internalisation / market-making)

The broker takes the other side of the client's trade and warehouses the position on its own book. If the client loses, the broker keeps the loss. If the client wins, the broker pays.

How the broker makes money:

Spread captured on entry and exit.
The statistical fact that the majority of leveraged retail accounts lose money over time (DFSA, FCA and ESMA disclosures put it in the 70–85% range across CFD brokers).

What clients get: often tighter spreads (no LP mark-up), instant fills, sometimes better execution on small sizes. The trade-off is a structural conflict of interest the broker has to manage with clear policies.

What the broker carries: direct market risk. A B-book unhedged through a major event (CHF January 2015, oil April 2020) can wipe out a brokerage. Risk teams set net-exposure limits and hedge ratios per instrument.

Hybrid in detail (the real model at most regulated brokers)

In practice almost no serious brokerage runs pure A-book or pure B-book. They run a hybrid where the routing decision happens per client, per instrument, sometimes per trade. The logic typically considers:

Client profile. Profitable accounts and large sizes get A-booked. Statistically losing accounts get B-booked.
Instrument risk. Highly volatile or news-driven symbols (gold around NFP, indices on Fed days) are A-booked or hedged.
Net exposure. When the internal book reaches a pre-set limit, new flow is hedged externally.
Time of day. Asian-session illiquid hours are often A-booked; deep London/NY liquidity is internalised.

What this means if you're a trader

A broker being B-book is not a scandal — it's a model. The scandal is when execution is manipulated (re-quotes, asymmetric slippage, last-look abuse). Those are different problems.
If your strategy is consistently profitable, an honest broker will A-book you and want to keep your flow because it's commission revenue with no risk.
Ask the broker in writing how their execution policy works. Regulated brokers (SCA, DFSA, FSRA, FCA, CySEC) publish one — it's required.

What this means if you're starting a brokerage

Pure A-book needs scale. Below roughly $50–100M monthly notional, the commission revenue rarely covers tech, licensing and LP credit costs.
Pure B-book without a risk team is how brokerages blow up on the next gap event. You need real-time net-exposure monitoring, hard limits and an auto-hedge mechanism before you take a single trade.
Hybrid is the realistic answer for most start-ups. Lean on a covering account with a tier-1 prime-of-prime so you can lay off the trades you don't want — without having to onboard ten LPs on day one.

The questions to ask any execution partner

Who is the ultimate liquidity source — a tier-1 bank, a non-bank market-maker, or aggregated?
Is last-look applied? On which symbols? What's the reject rate?
What's the average and 95th-percentile slippage on EURUSD, XAUUSD, US500 during news?
How is rejected flow handled — re-quote, re-route or filled at next available?
What's the credit-risk arrangement and margin haircut?
Do they provide post-trade transaction-cost analysis (TCA)?