To boil it down to the simplest level, A and B book are terms that refer to how a broker handles the risk associated with the business, which is represented by all the trades currently open at the broker. Let’s consider a very basic example.
Let’s say Trader A has bought 100,000 EUR/USD while the Trader B has sold 100,000 EUR/USD. In this case, the broker faces no risk as any uptick in price on Trader A’s account, reflects a downtick in price on Trader B’s account.
Trader A Buys 100,000 EUR/USD at 1.2140
Trader B Sells 100,000 EUR/USD at 1.2140
EUR/USD rises to 1.2240
Trader A has a net profit of 100 pips (+100 pips)
Trader B has a net loss of 100 pips (-100 pips)
Total Risk to the Broker: 100 pips – 100 pips = 0
How A Book Works
In the above example, the broker is taking on no associated risk since their risk is hedged. This is no different than having a hedged position on a trading account. In fact, a broker’s book of business is much like a trading account, the only difference being that the broker isn’t placing the orders.
In the above case, the broker has 2 choices, either to send both of the orders to their pricing providers, or not to. If it is a full A book broker, then all trades are sent to their pricing provider and the broker earns money via the spread markup.
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