B-Book brokers don’t necessarily like customers who win consistently.
These customers will grow their account balance over time.
This allows them to open bigger and bigger position sizes.
Eventually, they become too big and risky for the broker.
When this happens, their orders have to be hedged (A-Booked).
Remember, hedging costs money.
And since the trade is now hedged, the broker won’t make money if the customer loses anymore.
So its revenue is now limited to pocketing the spread (and overnight finance charges if the traders leave their positions open overnight).
They also don’t like traders who are too good because the trader is taking away money from their other customers.
A B-Book broker prefers that those profits are passed around more evenly among its customer base
This allows them to continue pocketing the spread from a larger pool of traders.
This is all fantastic news for brokers who run a B-Book.
But it’s not so fantastic for brokers that strictly run an A-Book.
Every time an A-Book broker sees a losing customer, it is a potential profit that is now lost forever.
With such a high percentage of new traders blowing their accounts, and the universe of new traders being finite, it is questionable if a strictly A-Book approach is sustainable in the long term.
It’s an extremely tough business for a retail forex broker to operate as 100% A-Book.
It’s hard to make a lot of money and with margins so tight, it’s not surprising why brokers run a B-Book as an additional source of revenue.
That said, the B-Book model is considered challenging in terms of risk management.
Especially if you have lots of customers who open positions in the same direction and trade profitably.
If their customers win big enough, the losses for the broker could be enough to put the broker out of business.
This is the reason why most brokers use a combination of B-Book and A-Book execution, also known as a “hybrid model”.
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