What do you do when your B-book is not making money?

While there are many advantages to being a market maker, ensuring your B-Nook is profitable can take some work. As providers of bespoke trading technology, we often see that brokers could be doing things to optimise profits and fine-tune their business; here are some of the solutions we’ve helped our clients with in the past.

Manage risk

Assessing and managing risk is one of the first ports of call. Unbounded VaR can cause large swings in PNL, so it’s important to consider the following options:

• Reduce risk exposure to protect against the possibility of losses

• Time your holding periods and exit out of risk before it turns negative

• Set different hedging strategies based on various types of flow: hedge quickly where there is a short window to capture PNL

• Define your execution strategies for internalising or brokering specific sets of flow

Improve pricing 

When your pricing models are inefficient, your business becomes extremely vulnerable to latency arbitrage and trades filling the wrong side of mid. This results in negative spreads and large longer term losses that could be avoided, saving you money and resources. We can help you form your own price, negating the need to rely on out-of-house providers and avoiding the negative implications they come with.

Counterparty classification and analysis

Internalising A-Book flow in a B-Book is very costly, whilst A-Booking your B-Book flow means you are passing out good flow that would be profitable in a B-Book. The solution to this is having an accurate, effective classification process that allows you to tie different risk management and hedging strategies against different types of flow. Our automated classifier ensures our clients’ businesses are reacting to harmful flow quickly, and in real-time.