B-Book Internalization Flow

How to Read This Diagram

In a B-book model, the client's order never leaves the broker. The Dealing Desk Engine receives the order and evaluates it against current risk exposure. Instead of routing to an external LP, the broker internalizes the order, adding it to the internal position book.

The Risk Management layer aggregates all client positions and may apply hedging rules (e.g., hedge net exposure beyond a threshold). The client receives a fill at a synthetic price set by the dealing desk -- typically derived from an LP feed but with the broker's spread applied.

Structural Implications

• The broker is the direct counterparty: when the client profits, the broker loses, and vice versa.
• Execution is typically faster than A-book (no external LP round-trip) but the fill price is controlled by the broker.
• Risk management sophistication varies widely: from no hedging (pure B-book) to partial hedging of net exposure.
• The absence of external LP interaction means there is no last-look rejection, but the broker may apply its own requote logic.

When Does Hedging Happen?

Not all B-book exposure remains unhedged. Sophisticated dealing desks use threshold rules: once net exposure in a currency pair exceeds a limit, they hedge the excess with an external LP. This means the broker operates a hybrid of pure internalization and selective external execution, though the client's individual order is always filled internally.