Internalising is profitable because most retail accounts lose over time; brokers in the EU and UK must publish exactly what share, and the figures are typically between 65% and 85%. Netting opposing client positions also saves real hedging cost, which is a legitimate efficiency.
The problems arise when a B-booked client wins. Complaints about sudden requotes, worsening fills or account restrictions frequently trace back to flow being reclassified. Disclosure requirements exist precisely because the incentive is obvious.
Example: a broker B-books 90% of accounts. Those clients lose a net $4,000,000 in a quarter, all of which is broker revenue, while the remaining 10% are A-booked and produce only spread income.
Related: a-book, hybrid-book, dealing-desk, loss-percentage-disclosure