FX brokers try to be more profitable by, - booking(b-book) the traders that are predicted to be losing money according to the trader profile or trading history. so, if the customer loses money, the broker will earn money. - hedging(a-book) the traders that are predicted to be earning money according to the trader profile or trading history. so, if the customer earns money, the broker will not be affected because he hedged the customer trades.

In order to do that categorization, brokers should make some analyses, of course. I wonder how they analyze their customer base. What are the criteria? For example, a customer lost $200 by trading 20lots of trades, yes he/she lost money but traded high lots which means he may be considered successful. I mean, just looking to the profit column of the customer may not be the correct way.

What do you think the key points of that kind of analysis?

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    $\begingroup$ There have been some articles around court cases of this type of categorisation. Due to the ease of hedging most brokers, make two categorizations: toxic or non-toxic. Toxic flow is characterised by trades which become offside immediately or almost immediately after execution. It is nothing to do with the customers overall success rate, it is simply monitoring their execution pattern. The decision to hedge will be based on risk limits at a portfolio level and if automated at an individual trade level will be a simple mechanic or technical generalist market algo. $\endgroup$ – Attack68 Feb 5 at 15:37
  • $\begingroup$ I had to look it up: "Onside and offside are where you are in profit or suffering a loss on your trade respectively". $\endgroup$ – noob2 Feb 5 at 17:49

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