What Is an A-Book Broker?
While your forex broker is always your counterparty—meaning they take the other side of your trade—that doesn’t mean they have to carry the risk of your trade.
If a broker doesn’t want to keep the risk (aka B-Book the trade), it can offload it to someone else in the market.
This process is called hedging or transferring market risk.
Who Does the Broker Offload Risk To?
The broker can hedge its risk by making a trade with a third-party participant in the institutional FX market, such as:
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A bank
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A non-bank market maker
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A hedge fund
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Another forex broker
These entities are called liquidity providers (LPs) because they provide tradable prices 24/7.
If the broker needs to buy, the LP is ready to sell.
If the broker needs to sell, the LP is ready to buy.
A-Book Execution: Passing the Risk Along
When a broker takes the opposite of your trade, but doesn’t want to keep the risk, it passes that risk to an LP. This is called A-Book execution.
Here’s how it works:
When you place a trade with your broker, the broker immediately places a similar trade—in the same direction—with a liquidity provider.
This second trade is called a hedge or cover position.
Effectively, the broker has "copied" your trade with another party to make sure it stays market-neutral.
Trade Example: How A-Book Execution Works
Let’s bring back Elsa.
She decides to buy 3,000,000 EUR/USD at 1.2000.
This means the broker is now short 3,000,000 EUR/USD.
But since this is a large trade, it exceeds the broker’s internal risk limits. So the broker hedges by buying 3,000,000 EUR/USD from an LP.
Now, the broker holds:
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A short position against Elsa
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A long position against the LP
These two positions cancel each other out, meaning the broker has no market risk.
Important Note: Who Is Elsa Really Trading With?
Even though the broker hedged with an LP, Elsa is not trading directly with that LP.
She is still trading only with her broker.
What the broker did is open a completely separate trade with a third party.
It didn’t “route” Elsa’s order—it just copied it.
So now:
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The broker is Elsa’s counterparty.
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The broker is also the LP’s counterparty.
Two separate trades. Two different relationships.
What Happens If the Market Moves?
Let’s look at two possible outcomes:
📈 Scenario 1: EUR/USD Rises
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Elsa’s long trade wins.
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The broker (short against Elsa) loses.
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BUT the broker’s hedge (long against the LP) gains.
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The gain offsets the loss. The broker breaks even.
📉 Scenario 2: EUR/USD Falls
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Elsa’s long trade loses.
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The broker (short against Elsa) gains.
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BUT the broker’s hedge (long against LP) loses.
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Again, the broker breaks even.
📊 In both cases, the broker’s net P&L = $0. It took on no market risk and no profit or loss from the price movement.
So… How Does an A-Book Broker Make Money?
Good question.
As you just saw, the broker doesn’t profit from price changes—it breaks even thanks to the hedge.
In the next lesson, we’ll explore how A-Book brokers actually generate revenue, even when they don’t bet against their clients.