Two execution models. Different risk profiles. Same client experience.
Every retail broker faces the same fundamental decision: what happens when a client places an order? The answer defines the broker's risk profile, revenue model, and capital requirements. In the industry, these execution approaches are called A-book and B-book.
In the A-book model, the broker routes client orders directly to external liquidity providers — banks, ECNs, or exchanges. The broker acts as an intermediary, passing the order through (Straight-Through Processing) without taking the opposite side of the trade.
Revenue model: Commissions per trade and/or spread markups added on top of the LP's raw pricing. Revenue is predictable and scales with trading volume.
Risk profile: The broker carries no market risk. If the client wins or loses, it does not affect the broker's P&L — revenue comes only from execution fees.
Capital requirements: Lower capital requirements since the broker does not hold market risk. However, the broker needs LP agreements, which often require deposits.
In the B-book model, client orders execute internally against the broker's own book. The broker takes the opposite side of the client's trade. If the client buys EUR/USD, the broker sells EUR/USD — creating a direct economic exposure.
Revenue model: The broker earns from the spread and from client trading losses. Statistically, a large percentage of retail clients lose money (80-90% depending on jurisdiction), making B-book highly profitable on average. However, individual large winning clients can cause significant losses for the broker.
Risk profile: The broker carries market risk. A concentrated client position going the wrong way for the broker can result in significant losses. Risk management — position limits, hedging, and exposure monitoring — is critical.
Most established brokers use a hybrid model — routing some flow to LPs and keeping some internal. The split is determined by rules configured in the platform:
By instrument: Route major FX pairs internally (high-volume, tight spreads), send exotic pairs to LPs. Route equity orders to exchanges via Interactive Brokers.
By client profile: Route professional and consistently profitable clients A-book. Keep retail flow with typical loss rates on the B-book.
By order size: Keep small orders internal. Route large orders to LPs to avoid concentrated risk.
TraderEvolution's Routing Rules support all three approaches, configurable per instrument, per client group, or per individual account from the Back-Office.