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The B Book model is a term spread betting and fx brokers use to assign a category of clients that consistently lose money. There are generally three books, and the terms vary between geographical location and broker so think of the allocation loosely.
A while ago we asked why no decent spread betting or CFD broker should actually want churn and burn clients. So let’s take a look at the three book types…
The A Book
The A book is the main body of the client base that the broker hedges or nets off positions against. They are fairly natural on the profitability of these customers and take low-risk approach to their trading.
The B Book
The B book is assigned to clients who always lose money. These are generally smaller new accounts that the broker will not hedge against or “internalise orders”.
It’s a fairly standard way to make money as a broker. It’s not as bad as it sounds as the broker is providing a very low cost way for small punters to access the world’s financial markets.
It would not be cost effective to only generate income from these customers from spreads and finance charging.
On average it costs a spread betting broker about £1,500 in advertising sped to get a new customer, so they need to aim to earn more to be profitable.
In fact, client acquisition costs for brokers have risen significantly in the last few years. Finance Feeds highlighted this for Plus 500 (a CFD broker) back in August.
The B Book is usually assigned to the FX, Index and Bond markets, where trades are smaller but of higher frequency than the equity market.
The C Book
Doesn’t really have a place in today’s market as the rules towards firms operating their own prop books and personal account (PA) trading are now very strict.
In the past though, spread betting brokers used to be well aware of the clients that always made money.
They would sometimes follow the trades to make a bit of money trading themselves.
Now, though it’s too much of conflict of interest between the broker and the clients so doesn’t really happen now.
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.