While A-Book and B-Book are well-known execution models, some brokers also use “C-Book” strategies, which are essentially variations of A-Book and B-Book to optimize profitability while managing risk.
🚨 Key Takeaway: C-Book execution is NOT an entirely different model but rather a combination of risk management techniques aimed at increasing the broker’s profits.
📌 What Is C-Book Execution?
C-Book refers to execution models that involve:
✔ Partial hedging – Only hedging a portion of a trade.
✔ Overhedging – Hedging more than 100% of a customer’s position.
✔ Reverse hedging – Taking the opposite side of a losing trader’s position to maximize profits.
📌 Why do brokers use C-Book?
✔ To optimize profits while limiting exposure to market risk.
✔ To increase profitability from A-Book customers while still benefiting from B-Book customers.
✔ To balance internal order flow and reduce trading costs.
📌 1️⃣ Partial Hedging (Mix of A-Book and B-Book)
In partial hedging, the broker hedges only a portion of the customer’s trade instead of fully hedging it.
✔ Some risk is transferred to an external liquidity provider (A-Book).
✔ Some risk is kept in-house (B-Book), hoping for customer losses.
📌 Example:
Scenario 1: Customer Wins
🚀 Elsa buys 1,000,000 EUR/USD at 1.2001.
✔ The broker hedges 50% of Elsa’s position with an LP at 1.2000.
✔ EUR/USD rises, and Elsa closes at 1.2101, making $10,000 profit.
✔ The broker loses $10,000 to Elsa but profits $5,100 from its hedge.
✔ Net loss for the broker: $4,900 (instead of $10,000).
Scenario 2: Customer Loses
🚀 Elsa buys 1,000,000 EUR/USD at 1.2001.
✔ The broker hedges 50% of Elsa’s position with an LP at 1.2000.
✔ EUR/USD falls, and Elsa closes at 1.1951, losing $5,000.
✔ The broker gains $5,000 from Elsa but loses $2,400 from its hedge.
✔ Net profit for the broker: $2,600 (instead of $5,000).
✅ Why Brokers Use Partial Hedging:
✔ Reduces risk if the customer wins.
✔ Still allows the broker to profit if the customer loses.
✔ Provides flexibility in managing risk.
📌 2️⃣ Overhedging (A-Book+)
In overhedging, the broker hedges MORE than 100% of a customer’s trade to profit if the trade is successful.
✔ If the customer wins, the broker profits even more from the hedge.
✔ If the customer loses, the broker loses even more due to excessive hedging.
📌 Example:
Scenario 1: Customer Wins
🚀 Elsa buys 1,000,000 EUR/USD at 1.2001.
✔ The broker hedges 110% of Elsa’s position (1,100,000 EUR/USD) at 1.2000.
✔ EUR/USD rises, and Elsa closes at 1.2101, making $10,000 profit.
✔ The broker loses $10,000 to Elsa but profits $11,220 from its hedge.
✔ Net profit for the broker: $1,220.
Scenario 2: Customer Loses
🚀 Elsa buys 1,000,000 EUR/USD at 1.2001.
✔ The broker hedges 110% of Elsa’s position (1,100,000 EUR/USD) at 1.2000.
✔ EUR/USD falls, and Elsa closes at 1.1951, losing $5,000.
✔ The broker gains $5,000 from Elsa but loses $5,610 from its hedge.
✔ Net loss for the broker: $610.
✅ Why Brokers Use Overhedging:
✔ Allows them to ride along with winning traders.
✔ Can increase profitability if the trader is successful.
✔ Higher potential profits but higher risk exposure.
🚨 Risk: If the customer loses, the broker loses even more due to excessive hedging.
📌 3️⃣ Reverse Hedging (B-Book+)
In reverse hedging, instead of hedging against a customer’s position, the broker adds to it, increasing market risk.
✔ If the trader loses, the broker makes even more money.
✔ If the trader wins, the broker loses even more.
📌 Example:
Scenario 1: Broker Wins (Trader Loses)
🚀 Elsa buys 1,000,000 EUR/USD at 1.2001.
✔ The broker does NOT hedge but instead shorts an additional 500,000 EUR/USD.
✔ EUR/USD falls, and Elsa closes at 1.1951, losing $5,000.
✔ The broker profits $5,000 from Elsa AND an additional $2,500 from its own short trade.
✔ Total broker profit: $7,500.
Scenario 2: Broker Loses (Trader Wins)
🚀 Elsa buys 1,000,000 EUR/USD at 1.2001.
✔ The broker does NOT hedge but instead shorts an additional 500,000 EUR/USD.
✔ EUR/USD rises, and Elsa closes at 1.2101, making $10,000 profit.
✔ The broker loses $10,000 to Elsa AND an additional $5,000 from its own short trade.
✔ Total broker loss: $15,000.
✅ Why Brokers Use Reverse Hedging:
✔ Can maximize profits if traders consistently lose.
✔ Allows brokers to profit from poor traders’ mistakes.
🚨 Risk: If the trader wins, the broker takes massive losses.
📌 Summary of C-Book Execution Methods
| C-Book Strategy | What It Does | When the Broker Wins | When the Broker Loses | Risk Level |
|---|---|---|---|---|
| Partial Hedging | Hedging only part of the trade | If the trader loses, but less | If the trader wins, but less | Low |
| Overhedging | Hedging more than 100% | If the trader wins | If the trader loses | Medium |
| Reverse Hedging | Adding to the B-Book risk | If the trader loses | If the trader wins | High |
📌 Should Traders Be Concerned About C-Book Brokers?
🚨 C-Book execution methods are controversial because:
✔ Brokers are actively trying to maximize profits instead of purely hedging risk.
✔ Some methods, like reverse hedging, are highly speculative.
✔ Traders may not always get fair execution if brokers manipulate trades.
✅ How to Protect Yourself:
✔ Choose a broker regulated by FCA, ASIC, CySEC, or NFA/CFTC.
✔ Use a broker with transparent execution policies.
✔ Look for tight spreads and fair trade execution.
🚀 Want to avoid being C-Booked?
✔ Trade large volumes (profitable traders are usually A-Booked).
✔ Be consistent (profitable traders get hedged externally).
✔ Avoid reckless, high-leverage trading (risky traders are more likely to be B-Booked).
💡 C-Book execution isn’t necessarily bad, but it gives brokers more ways to profit off traders. Understanding how your broker manages risk can help you make smarter trading decisions! 🚀
