How Forex Brokers Use B-Book to Manage Their Risk.

Let’s look at a couple of examples of how forex brokers use b-book to manage their risk.

B-Book Order Execution Example #1: Broker Wins

In the example above, Elsa went long 100,000 EUR/USD at 1.1500. Her broker “B-Booked” (took the opposite of) the trade and is short 100,000 EUR/USD.

EUR/USD falls to 1.1400.

Elsa can’t take the pain any longer and closes her position by selling 100,000 EUR/USD at 1.14000.

She ends up with a $1,000 loss

P&L = (Exit Price - Entry Price) x Position Size
-1,000 = ((1.1400 - 1.1500) x 100,000)

On the other hand, the broker ends up with a $1,000 profit.

P&L = (Entry Price - Exit Price) x Position Size
1,000 = ((1.1500 - 1.1400) x 100,000)

In this scenario, for accepting the market risk, the broker was rewarded with a PROFIT.

It was a positive outcome.

B-Book Order Execution Example #2: Broker Loses

Let’s now take a look at what happens when the market moves AGAINST the broker.

In the example above, Elsa went long 100,000 EUR/USD at 1.1500. Her broker “B-Booked” (took the opposite of) the trade and is short 100,000 EUR/USD.

EUR/USD rises 200 pips to 1.1700.

Elsa decides to take profit and closes her position by selling 100,000 EUR/USD at 1.17000.

She ends up with a $2,000 profit

P&L = (Exit Price - Entry Price) x Position Size
2,000 = ((1.1700 - 1.1500) x 100,000)

On the other hand, the broker ends up with a $2,000 loss.

P&L = (Entry Price - Exit Price) x Position Size
-2,000 = ((1.1500 - 1.1700) x 100,000)

In this scenario, for accepting the market risk, the broker suffered a LOSS.

It was a negative outcome.

Here’s a summary of how a B-Book broker benefits depending on the outcome of a trade:

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