A Book B Book
A Book B Book refers to two distinct order execution models used by forex and CFD brokers: A-Book (agency) routes client orders directly to external liquidity providers, while B-Book (market-making) internalizes client orders and takes the opposite side of the trade.
Quick Definition Box
In the A-Book model, your broker earns a fixed commission or markup and has no financial interest in whether you win or lose. In the B-Book model, your broker profits when you lose and loses when you win, creating a potential conflict of interest. Most retail brokers operate a hybrid model, dynamically switching between A-Book and B-Book based on client profitability and market conditions.
Detailed Explanation
The terms "A-Book" and "B-Book" originate from the accounting ledgers brokers use to track client orders. When a broker receives your order, it must decide: send it to the interbank market (A-Book) or keep it internally (B-Book).
A-Book (Agency Model): Your order is transmitted to a liquidity provider—typically a bank, ECN, or non-bank market maker—via an electronic communication network (ECN) or straight-through processing (STP) bridge. The broker acts purely as an intermediary, earning a spread markup or a fixed commission per lot. For example, if you buy 1 lot EUR/USD at 1.1050, the broker routes that buy order to its liquidity pool. The broker's revenue is the difference between the price you receive and the price the liquidity provider gives, say 0.2 pips, or a flat $7 per lot. Your P&L is entirely external to the broker.
B-Book (Market-Making Model): The broker does not route your order anywhere. Instead, it becomes your counterparty. If you buy EUR/USD, the broker "sells" to you from its own inventory (or simply records the offsetting position). The broker's profit comes from your losses, plus the spread. For instance, if you open a 0.5 lot position and the market moves 10 pips against you, the broker gains $50 (assuming 1 pip = $10 per standard lot, so 0.5 lot = $5 per pip). If the market moves in your favor, the broker loses that amount.
The Hybrid Reality: Few brokers operate purely A-Book or B-Book. Most use a hybrid: they route profitable or large clients to the A-Book (to avoid taking the other side of a winning trader) and keep losing or small clients in the B-Book (to profit from their losses). The decision is often automated, based on account balance, win rate, and order size. Some brokers also use B-Book for illiquid hours and A-Book during high volatility.
Key Differences in Execution: A-Book orders typically face variable spreads and slippage because they depend on external liquidity. B-Book orders often have fixed spreads and minimal slippage because the broker controls the price feed. However, B-Book brokers may widen spreads or manipulate quotes during news events to trigger stop-losses—a practice known as "stop hunting."
Real-World Example
Imagine you trade 2 lots of GBP/USD at 1.2700 with a stop-loss at 1.2680 (20 pips away).
Scenario A (A-Book): Your broker routes the order to an ECN. The best available bid is 1.2698, so you get filled at 1.2698—2 pips worse than the quoted price. Your stop-loss is also routed externally. When price hits 1.2680, the broker sends a market order to close. If liquidity is thin, you might get filled at 1.2675, adding 5 pips of slippage. Your total loss: 25 pips × $20 per pip (2 lots) = $500. The broker earns a $14 commission (2 lots × $7).
Scenario B (B-Book): The broker internalizes your order. You get filled at exactly 1.2700 with zero slippage. Your stop-loss is also internal—the broker sees it and can choose to fill it at 1.2680 exactly. Your loss: 20 pips × $20 = $400. The broker gains $400 from your loss, plus the spread (say 1 pip = $20). Total broker revenue: $420. If you had instead made a profit of 20 pips, the broker would lose $400—which is why B-Book brokers often restrict or re-quote profitable traders.
Why It Matters for Traders
Understanding A-Book vs B-Book affects your expectations about execution quality, costs, and fairness.
- Cost structure: A-Book brokers charge commissions or wider spreads but have no incentive to manipulate prices. B-Book brokers offer tight spreads but may widen them during volatile periods.
- Slippage: A-Book orders are subject to real market slippage, especially during news. B-Book orders often have guaranteed fills but may suffer from "requotes" or artificial price gaps.
- Conflict of interest: With B-Book, your broker profits from your losses. This doesn't mean all B-Book brokers are fraudulent—many are regulated and operate fairly—but the incentive structure is fundamentally different.
- Account restrictions: B-Book brokers may limit leverage, maximum position sizes, or even close accounts of consistently profitable traders. A-Book brokers generally don't care about your profitability.
Common Misconceptions
Misconception 1: "A-Book is always better than B-Book."
False. A-Book execution can be worse in illiquid markets—you may face wider spreads and more slippage than a B-Book broker offers. B-Book brokers can provide faster fills and fixed spreads, which some traders prefer.
Misconception 2: "B-Book brokers always manipulate prices."
Not true. Regulated B-Book brokers (e.g., those under FCA or ASIC) must adhere to fair pricing rules. Manipulation is illegal and rare among reputable firms. However, the conflict of interest exists, and you should check the broker's disclosure.
Misconception 3: "Hybrid brokers are always B-Book."
Incorrect. Hybrid means the broker dynamically chooses. A profitable client might be routed A-Book 100% of the time, while a losing client stays B-Book. The model is not static.
Related Terms
How XM Compares
XM operates as a No-Dealing-Desk (NDD) broker, which means it does not run a B-Book for its clients. According to XM's public documentation, all client orders are executed on an agency basis—either via STP or ECN—without a dealing desk intervention. This means XM does not take the opposite side of your trades and has no conflict of interest regarding your profitability. However, XM may still act as a market maker for certain instruments or during specific conditions, so you should verify the current execution model on XM's official website. The key takeaway: XM's standard model is A-Book, but always confirm the latest terms before trading.
Compliance Footer
⚠️ This glossary entry is educational. Forex/CFD trading carries high risk. This is not investment advice.
See all glossary entries: /en/glossary