A-Book, B-Book and the Incentive Problem Behind Every Fill
Posted: Tue Oct 27, 2026 3:26 am
Brokers generally handle client orders in one of two ways. Under an agency or A-book model, the order is passed to a liquidity provider or exchange, and the broker earns from spreads or commission. Under a B-book model, the broker takes the other side of the trade internally, which means a client loss is a broker gain.
That conflict of interest is not illegal in most jurisdictions, but it shapes incentives. A broker that internalises flow has a reason to prefer clients who lose, and a reason to treat consistently profitable clients as a cost. Many firms run a hybrid, keeping flow that appears unprofitable in-house while hedging flow that appears skilled.
For scalpers, the hybrid model matters most. Short holding times, tight targets and high trade counts are exactly the patterns that classification systems tend to pick up. Execution terms can quietly change after an account is tagged, such as wider spreads, slower fills or reduced size limits.
Useful questions for a broker include whether orders are internalised, whether the firm discloses its hedging approach, and whether execution statistics are published. Vague answers are information in themselves.
That conflict of interest is not illegal in most jurisdictions, but it shapes incentives. A broker that internalises flow has a reason to prefer clients who lose, and a reason to treat consistently profitable clients as a cost. Many firms run a hybrid, keeping flow that appears unprofitable in-house while hedging flow that appears skilled.
For scalpers, the hybrid model matters most. Short holding times, tight targets and high trade counts are exactly the patterns that classification systems tend to pick up. Execution terms can quietly change after an account is tagged, such as wider spreads, slower fills or reduced size limits.
Useful questions for a broker include whether orders are internalised, whether the firm discloses its hedging approach, and whether execution statistics are published. Vague answers are information in themselves.