A-book, B-book and what happens to your order after you click
Some brokers pass your order to the market. Some take the other side of it themselves. Most do both, and which one you get depends on how you trade.
Key takeaways
- – A-book brokers hedge client orders externally; B-book brokers internalise the risk
- – Most retail brokers run a hybrid model and route clients by profile
- – Neither model is inherently dishonest – what matters is disclosure and execution quality
When you click buy on a retail platform, one of two things happens to that order. It is passed on to a liquidity provider, or the broker takes the other side itself. Which one occurred is invisible from your screen, and it shapes whether your broker profits when you profit or when you lose.
The A-book model
The broker hedges your position with an external counterparty. It earns from spread and commission, and it is indifferent to whether you win, because its market risk is offset. This is the model most people assume they are getting, and it aligns incentives cleanly – the broker wants volume and wants you to survive long enough to generate it.
The cost is that hedging is expensive, spreads are usually wider or commission is charged separately, and fills reflect real market conditions including slippage.
The B-book model
The broker internalises the trade and becomes your counterparty. Your loss is its revenue. This sounds predatory and is not automatically so: internalising lets a broker offer tighter spreads and instant fills on small orders, and the majority of retail flow nets off against itself, leaving modest residual risk that the broker manages in aggregate rather than trade by trade.
The problem is structural rather than moral. A firm whose revenue rises when clients lose has an interest that runs against yours, and the further that interest goes unmanaged, the worse the outcomes get.
Hybrid routing is the norm
Most retail brokers operate both books and route clients between them. Consistently profitable accounts and large orders tend to be routed externally; the rest are internalised. This is why a trader who becomes profitable sometimes notices execution quietly deteriorating – requotes appearing, slippage worsening, fills slowing. The account has been reclassified.
What to actually check
- Disclosure. The client agreement and execution policy should state whether the broker acts as principal. Vagueness here is itself information.
- Execution statistics. Some regulators require publication of fill quality data. Read it where it exists.
- Slippage symmetry. Genuine market execution slips both ways. If your fills are consistently worse than requested and never better, that asymmetry is a finding.
- Behaviour around news. Compare spread and fill quality during a scheduled release against a quiet hour.
Full checklist: How to evaluate a broker before you fund an account.
