Conceptual comparison of A-Book and B-Book broker models illustrating execution structure, spread behavior, order size impact, and counterparty risk

Is Your Trading Account Really A-Book or B-Book?

Most traders believe they know the difference between A-Book and B-Book. In practice, very few understand how routing decisions are made, how pricing behaves at different sizes, and how commission structures interact with spread economics.

The question is not whether A-Book is good and B-Book is bad.

The real question is: how does your broker make money from your order flow?

What Is A-Book Routing?

In an A-Book model, client orders are routed directly to external liquidity providers.

The broker does not warehouse the trade. Instead, it passes the exposure externally and earns from:

• Commission • Spread markup • Volume-based incentives

Revenue is transaction-based rather than outcome-based.

In theory, the broker’s profit is independent of whether you win or lose.

However, margin per trade is small, and cost structure matters.

What Is B-Book Internalization?

In a B-Book model, the broker internalizes the trade.

Your order remains within the broker’s risk book.

If you lose, the broker profits. If you win, the broker pays.

Statistically, a large percentage of retail traders lose over time.

This probability distribution makes internalization economically attractive.

The model is based on portfolio-level exposure management rather than individual trade outcome.

The Hybrid Model Nobody Explains

Most modern brokers operate hybrid routing.

Not all accounts are purely A-Book or purely B-Book.

Routing decisions may depend on:

• Account profitability history • Trading style • Scalping frequency • News trading behavior • Latency sensitivity • Slippage complaints • Risk score algorithms

Profitable or “toxic” flow may be routed externally.

Statistically losing flow may remain internalized.

This segmentation is rarely visible to the client.

The Micro-Lot Illusion

Many brokers advertise extremely tight spreads.

For example:

EURUSD at 0.1 pips.

But pricing behavior changes with size.

At 0.01 lot, spreads may appear fixed and tight.

At 0.5 or 1.0 lot, spread widening or slippage may occur.

Why?

Because visible spread is not the same as executable depth.

If interbank liquidity shows 0.3–0.4 pips as best bid-ask reference, consistent 0.1 pip pricing implies internalization or offsetting logic.

This does not mean fraud.

It means pricing flexibility exists within internal risk models.

Size tests often reveal depth reality.

Spread vs Depth Mathematics

Consider this simplified arithmetic:

If interbank best spread = 0.4 pips Broker advertised spread = 0.1 pips Commission = $3 per side per lot

The broker’s revenue must cover:

• Liquidity provider cost • Infrastructure • Risk management • Operational overhead

If raw liquidity cost exceeds advertised spread plus commission, the pricing must be offset internally.

This is not accusation. It is basic cost arithmetic.

If price is cheaper than wholesale reference, internalization or warehousing is logically implied.

Commission Arithmetic and Incentive Inversion

Many traders assume lower commission equals better conditions.

However, commission is only one part of total transaction cost.

If commission is extremely low and spreads are consistently below wholesale reference levels, the broker must generate margin elsewhere.

In a fully externalized A-Book model, margin compression reduces sustainability.

In an internalized model, lower visible cost may increase counterparty exposure.

Low commission does not automatically mean lower risk.

It may mean different risk allocation.

Slippage Asymmetry

Execution quality is often assessed through slippage.

In theory, slippage should be symmetric over time:

• Positive slippage • Negative slippage

In heavily internalized environments, asymmetry may appear.

If negative slippage occurs more frequently than positive slippage under high volatility, routing structure should be evaluated.

Again, this is structural, not accusatory.

Execution behavior reflects risk book design.

When Tight Spreads Can Be a Red Flag

Tight spreads are not inherently suspicious.

However, consistently tighter-than-reference spreads combined with size-dependent widening may indicate internal risk warehousing.

If pricing does not change during volatility spikes while external markets widen, this suggests price smoothing.

Price smoothing is possible only with internalization.

The question becomes: who absorbs volatility risk?

Counterparty Risk and Cost Visibility

Every trading account involves counterparty risk.

In B-Book-heavy environments, the broker becomes direct counterparty.

In A-Book environments, exposure is transferred externally.

If you trade with extremely low visible cost, ask:

Where does the broker’s margin originate?

Counterparty risk increases when broker profitability depends directly on your loss.

This does not imply malicious intent.

It defines incentive alignment.

Why A-Book Is Not Automatically Superior

A-Book routing transfers exposure externally.

However:

• Spreads may widen more aggressively • Slippage may reflect true depth • Liquidity gaps are visible • Cost becomes more transparent

In volatile markets, true liquidity may be more expensive than smoothed internal pricing.

There is no binary “good” or “bad.”

There is structural trade-off.

The Professional Perspective

Professional traders often prefer:

• Transparent commission • Real liquidity depth • Variable spreads that reflect market reality • Execution without artificial smoothing

Paying realistic cost can reduce structural uncertainty.

Extremely low cost can introduce hidden counterparty exposure.

Cost visibility is different from cost elimination.

The Statistical Reality

Most retail traders lose.

For the majority, A-Book or B-Book routing may not materially change outcome.

If you consistently lose, internalization mechanics are secondary.

However, for traders who intend to achieve long-term profitability, structural routing begins to matter.

Routing becomes relevant only when performance becomes statistically significant.

Structural Conclusion

The debate is not A-Book vs B-Book.

The real issue is structural transparency.

Ask:

• How does the broker generate revenue? • How does size affect pricing? • Is slippage symmetric? • Are commissions mathematically consistent with wholesale liquidity?

Structure determines incentive alignment.

Incentive alignment determines long-term trust.

Understanding routing does not guarantee profitability.

It reduces structural ignorance.

Internal Links

Why FX Brokers Make Money What Is a Prop Firm Challenge? Best Prop Firms How to Get Funded Without a Challenge Free Prop Firm Free Trading Journal What Is Market Liquidity?

FAQ

Is B-Book illegal?

No. Internalization is legal in many jurisdictions when properly disclosed and regulated.

How can I test if my account is internalized?

Compare spread behavior at different lot sizes and observe slippage symmetry over time.

Is low commission always better?

Not necessarily. Commission must be evaluated alongside spread depth and routing structure.

Why do spreads widen at higher size?

Because visible spread does not equal executable liquidity depth.

Should profitable traders prefer A-Book?

Transparent routing may reduce counterparty exposure, but cost structure and execution quality must both be evaluated.

Does routing matter if I am not consistently profitable?

For most traders, structural routing is secondary to strategy and discipline. It becomes more relevant as profitability increases.