Why Do Forex Brokers B-Book?

What is a B-Book Broker?

A B-Book broker is one that takes the opposite side of your trade without hedging it with a liquidity provider (LP). Essentially, the broker holds the trade "in-house," meaning it assumes 100% of the risk.

If the customer's trade loses, the broker wins. Conversely, if the customer's trade wins, the broker loses. Given that the broker assumes all the risk, B-Book execution might seem like a risky strategy.

Why Do Brokers B-Book?

Most retail traders lose money when trading forex. In fact, between 74-89% of retail accounts are unprofitable. This high loss rate makes B-Booking appealing to brokers.

Imagine a coin flip where the odds of landing "heads" are 74-89% of the time. If you're a broker, this is a bet you'd want to take, knowing that your customers are wrong most of the time. The odds are in your favor.

How B-Book Brokers Make Money

When you buy from a B-Book broker, you're also selling to them. If you make money, the broker loses, and vice versa. If you keep losing, the broker profits, slowly capturing more of your initial deposit.

New retail traders often act like gamblers, and the B-Book broker becomes the "house." According to the "90/90/90 rule," 90% of new traders lose 90% of their money in 90 days. So, for a B-Book broker, it's a profitable waiting game.

Example of Broker Profits

Let’s assume an average deposit of $1,000. Over the course of a year, a B-Book broker can make significant profits from customers who lose their deposits:

# of CustomersTotal Deposits60% Lost70% Lost80% Lost90% Lost100$100,000$60,000$70,000$80,000$90,000500$500,000$300,000$350,000$400,000$450,0001,000$1,000,000$600,000$700,000$800,000$900,0002,000$2,000,000$1,200,000$1,400,000$1,600,000$1,800,0005,000$5,000,000$3,000,000$3,500,000$4,000,000$4,500,00010,000$10,000,000$6,000,000$7,000,000$8,000,000$9,000,000

Even with an average deposit of $1,000, B-Book brokers can make substantial profits, especially if they manage to attract larger deposits.

Do B-Book Brokers Want Customers to Lose?

While it's true that B-Book brokers profit when customers lose, this doesn’t mean they want their customers to lose. Brokers don't want every customer to lose, as that would make their operation unsustainable. What they want is a large number of customers who trade frequently and whose trades offset each other.

What B-Book Brokers Like

B-Book brokers prefer having many customers who trade similarly-sized positions. This allows the broker to offset trades, reducing market risk. For example, if one customer buys GBP/USD and another sells the same amount, the broker can pocket the spread without exposure to market risk.

Avoiding "Whales"

B-Book brokers aren't fond of large traders, or "whales," because their large trades can expose the broker to significant market risk. Instead, brokers prefer customers who trade smaller, frequent positions. This reduces the capital required to cover winning trades and ensures the broker can maintain profitability with minimal risk.

The Ideal Scenario for B-Book Brokers

The best situation for a B-Book broker is when half of their customers are taking long positions and the other half are taking short positions. If customers trade frequently and the trades offset each other, the broker faces little market risk, allowing them to pocket the spread and maintain a profitable operation.

Why Do Forex Brokers B-Book?

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