While a forex broker always takes the opposite side of a customer’s trade, it does NOT have to keep the risk on its books. Instead, it can transfer the risk to a third party—this is known as A-Book execution.
📌 1. What is A-Book Execution?
✔️ Brokers pass market risk to liquidity providers (LPs) instead of keeping the exposure themselves.
✔️ The broker replicates the customer’s trade with an external counterparty.
✔️ The broker makes a separate hedge trade with an LP to offset its risk.
✔️ The broker does not profit when the trader loses (unlike a B-Book broker).
✔️ The broker only earns a commission or markup on the spread.
💡 A-Book brokers make money from trading fees, NOT from traders’ losses.
📌 2. How A-Book Brokers Offload Risk
When a trader places a trade:
🔹 The broker takes the opposite side of the trade.
🔹 Instead of holding the risk (B-Book), the broker immediately hedges the risk by opening an offsetting trade with a liquidity provider.
📌 This process is called “covering” or “hedging” the trade.
💰 The Role of Liquidity Providers (LPs)
LPs are large financial institutions that provide price quotes and execute trades for forex brokers.
🔹 Banks (JPMorgan, Citi, Deutsche Bank)
🔹 Non-bank market makers (XTX Markets, Jump Trading)
🔹 Hedge funds
🔹 Other forex brokers
LPs ensure that a broker can always hedge its risk and not be directly exposed to market movements.
📌 3. A-Book Trade Example: Trader Buys EUR/USD
👤 Trader Elsa goes long 3,000,000 EUR/USD at 1.2000.
🏦 Broker takes the opposite side of the trade (short 3,000,000 EUR/USD).
📌 The broker does not want to hold this risk.
To hedge the risk:
✔️ The broker finds an LP and buys 3,000,000 EUR/USD at 1.2000.
✔️ Now the broker has two opposite trades:
- Short 3M EUR/USD against Elsa
- Long 3M EUR/USD against the LP
📌 The broker’s exposure is now zero.
Two Possible Scenarios
Let’s see what happens if the market moves.
📌 4. Scenario #1: EUR/USD Rises
EUR/USD rises to 1.2100 (+100 pips).
✅ Elsa wins:
P&L = (1.2100 – 1.2000) × 3,000,000
💰 = +$30,000
🚨 Broker loses:
P&L = (1.2000 – 1.2100) × 3,000,000
💸 = -$30,000
🔹 However, the broker also bought EUR/USD from the LP, which means:
✅ Broker wins against LP:
P&L = (1.2100 – 1.2000) × 3,000,000
💰 = +$30,000
📌 Final P&L:
✅ Elsa +$30,000
🚫 Broker $0
🚨 LP -$30,000
The broker neither profits nor loses because the hedge trade cancels out Elsa’s profit.
📌 The LP absorbed the loss instead of the broker.
📌 5. Scenario #2: EUR/USD Falls
EUR/USD drops to 1.1900 (-100 pips).
🚨 Elsa loses:
P&L = (1.1900 – 1.2000) × 3,000,000
💸 = -$30,000
✅ Broker wins against Elsa:
P&L = (1.2000 – 1.1900) × 3,000,000
💰 = +$30,000
🔹 However, the broker also bought EUR/USD from the LP, so:
🚨 Broker loses against LP:
P&L = (1.1900 – 1.2000) × 3,000,000
💸 = -$30,000
📌 Final P&L:
🚨 Elsa -$30,000
🚫 Broker $0
✅ LP +$30,000
📌 The LP absorbed Elsa’s loss instead of the broker.
📌 6. Summary: How A-Book Brokers Operate
✔️ Brokers hedge risk externally with LPs instead of keeping it.
✔️ If a trader wins, the LP loses.
✔️ If a trader loses, the LP wins.
✔️ The broker’s profit is always zero from the trade itself.
✔️ The broker makes money from spreads and commissions.
💡 Unlike a B-Book broker, an A-Book broker does NOT profit from a trader’s losses.
📌 7. How A-Book Brokers Make Money 💰
Since A-Book brokers don’t profit from traders’ losses, how do they make money?
1️⃣ Markup on Spreads
The broker adds a markup to the spread it receives from the LP.
Example: ✔️ LP’s quote: EUR/USD 1.2000 / 1.2001
✔️ Broker’s quote to trader: EUR/USD 1.1999 / 1.2002
✔️ Broker earns 0.2 pips per trade.
2️⃣ Commissions
Some A-Book brokers charge fixed commissions instead of marking up spreads.
Example: ✔️ Broker charges $7 per lot ($3.50 per side).
✔️ If a trader opens 100 trades per month, the broker earns $700 in commissions.
3️⃣ Volume-Based Trading
Since A-Book brokers don’t manipulate trades, they want traders to trade as much as possible.
✔️ More trades = More spread & commission revenue.
✔️ Profitable traders = Good customers.
📌 8. B-Book vs. A-Book: Key Differences
| Feature | B-Book Broker | A-Book Broker |
|---|---|---|
| Risk Management | Takes the opposite side of your trade | Hedges trades externally |
| Profit Model | Profits when traders lose | Earns spreads & commissions |
| Conflict of Interest? | Yes (Broker wants you to lose) | No (Broker doesn’t care) |
| Trading Conditions | Possible price manipulation | Transparent execution |
| Execution Speed | Can delay trades | Faster execution |
| Withdrawal Issues? | Sometimes difficult | Easier withdrawals |
💡 If your broker profits when you lose, do you think they want you to win? 🤔
📌 9. How to Identify an A-Book Broker
✔️ Check for regulation – Are they licensed by a strict regulator (FCA, ASIC, CFTC)?
✔️ Look at their pricing model – Do they offer raw spreads with commissions?
✔️ Test withdrawals – A good A-Book broker should process withdrawals quickly.
✔️ Check reviews – Do traders complain about stop hunting or slow execution?
✔️ Ask the broker – Some brokers are transparent and disclose whether they use A-Book execution.
📌 10. Final Thoughts
✔️ A-Book brokers hedge trades with liquidity providers instead of profiting from losses.
✔️ They make money from spreads and commissions, NOT by taking the other side of trades.
✔️ There is no conflict of interest, unlike B-Book brokers.
✔️ A-Book brokers want traders to succeed because profitable traders = more trading volume = more broker profits.
💡 If you want fair execution, transparency, and no conflict of interest, choose an A-Book broker.
