1) Definitions (simple, accurate)
You'll hear many variations of these terms. Here's the useful version.
A‑Book (STP / market routing)
- Client orders are routed to external liquidity (LP/PoP/PB), often via a bridge or FIX connectivity
- Broker revenue: markups, commission, volume incentives
- Broker risk: execution quality, liquidity cost, rejects, last look, volatile sessions
B‑Book (internalization)
- Orders are internalized (broker takes the other side under policy)
- Broker revenue: spreads/fees plus internalized PnL (depends on policy and trader mix)
- Broker risk: exposure concentration, tail events, abuse patterns, policy defensibility
Hybrid (segmented routing)
- Some flow routes to market, some flow internalizes
- Hybrid is not "random". It is a rules engine
- The quality of your segmentation and controls determines success
2) When each model makes sense
There is no universal best model. The best model depends on your broker stage, client acquisition channel, regulation, and risk appetite.
Choose A‑Book when
- You want maximum alignment and cleaner optics with partners
- You have stable liquidity connectivity and can manage costs
- Your clients are sensitive to execution quality and you want consistency
Choose B‑Book when
- You have strong risk controls and a clear internalization policy
- You can monitor exposure and handle tail-risk events
- You understand your trader distribution and behavior patterns
Hybrid is usually the endgame
Most mature brokers end up hybrid. It's the only approach that lets you control liquidity cost while defending execution quality. The key is to be explicit, measurable, and consistent.
This topic pairs naturally with the liquidity integration blueprint: Liquidity provider integration guide
3) Routing rules and segmentation (where the money is)
Segmentation can be based on account type, program, region, trader behavior, or symbol group. The goal is to send each flow to the execution path where it is least risky and most stable.
Common segmentation dimensions
- Account type: VIP vs standard vs promo
- Instrument group: majors vs exotics vs metals vs crypto
- Time windows: news events, rollovers, session opens
- Client risk score: behavior, disputes, pattern anomalies
- Trade size/velocity: max ticket size, bursts, order frequency
Rule design: keep it explainable
If your routing logic can't be explained to your own support and compliance team, it will fail. Prefer simple, auditable rules over "magic".
4) Toxic flow: practical indicators
Toxic flow is not "good traders". It's flow that systematically extracts value from a particular execution path. Toxicity indicators are patterns that correlate with higher slippage cost, rejects, and adverse selection.
Common toxicity indicators
- High win rate during short holding periods around news
- Repeated fills only when price moves favorably within milliseconds
- Systematic latency edge patterns (entry timing vs quote updates)
- Symbol/session concentration where LP performance is weak
Toxicity is handled by routing and policy, not by arguing with traders.
5) Risk controls and exposure management
B‑Book and Hybrid models require explicit exposure controls. Without them, one tail event can erase months of profit.
Minimum controls
- Exposure limits: per symbol, per group, per currency, per client tier
- Velocity limits: max orders per minute per account/IP/device
- Concentration controls: stop internalizing when exposure is too one-sided
- Kill switch: ability to route all flow to A‑Book during extreme events
Hybrid internalization policy
Hybrid is not "always internalize losing traders". That creates unstable, adversarial incentives. Mature policies define internalization by measurable criteria and always allow overrides for risk.
6) Slippage, last look, and disputes
Most disputes are execution disputes. Your operating model must include a slippage policy. That policy should be consistent across routing paths.
What to define
- How slippage is computed and reported
- Allowed slippage thresholds by symbol group
- How you handle gaps and volatile sessions
- How you handle LP last look rejects in routing
7) Monitoring KPIs (track daily)
Execution quality is measurable. If you don't measure it, you'll end up arguing from anecdotes.
- Reject rate by LP / bridge path / symbol group
- Execution latency (median, p95)
- Slippage distribution (not only averages)
- Spread distribution vs expected markups
- Internalization ratio (B‑Book share) by segment
- Exposure by symbol group and time window
8) Implementation roadmap
Phase 1: policy + visibility
- Write your execution policy and definitions
- Implement basic routing rules with audit logging
- Implement dashboards and alerts
Phase 2: mature routing
- Add risk scoring and symbol/session policies
- Implement multi‑LP routing logic and fallbacks
- Implement kill switches and incident playbooks
Where Brokeret fits
Brokeret helps brokers operate execution as a system: liquidity integration, bridge management, routing policy, monitoring, and back office workflows. If you want a realistic execution plan for your broker, start here: