Find & Compare Prime Brokers

Prime brokers explained:

In this guide to prime brokers we will explain what a prime broker does, who they do it for and which type of prime broker is more appropriate for specific types of client.

What is a prime broker?

Prime brokers provide trading and investing services to professional and institutional clients. Prime brokerage clients’ are split by size and asset class. But, the largest prime brokers in the world only accept very large clients so smaller and start-up hedge funds, brokers and traders must use a specific type of prime broker more appropriate to their trading.

The purpose of a prime broker is to act as the consolidated portfolio, risk and services account for a hedge fund. Their primary purpose is to allow hedge funds or large investment clients the ability to borrow securities or cash to trade and invest in order to achieve absolute returns.

Often hedge funds trade with many different brokers throughout the day who will then “give up” trades to the price broker where the bulk of a fund’s assets are held. Whilst the prime broker may handle the majority of a hedge fund’s execution it is normal for funds to spread business across multiple brokerage accounts to ensure that trades are executed with discretion and finesse.

Prime brokers also offer access to their client pool for capital introduction to increase the net asset value of hedge funds. This is also common with competing brokers who will want to add value to win execution business to generate commission.

Services

Prime brokers facilitate investment activity on behalf of a hedge fund very often with capital borrowed against the hedge fund itself. As hedge funds can be active with numerous brokers, a prime broker enables greater visibility on performance as all trades are settled through the prime broker. Their responsibilities can vary depending upon what is right for you and your hedge fund.

Trade execution

Prime brokers have experienced dealers to manage online trading with more complex order voice brokerage services. Prime brokers will provide their clients with an online trading platform with dedicated lines as well as dealers to execute orders over the phone (voice dealing).

Clearing & give ups

Prime broker clients can trade through smaller brokers and spread orders across multiple execution brokers, then give up to a main clearing prime broker to maintain execution anonymity.

Securities lending

When hedge funds and traders have short positions the underlying shares need to be borrowed. Prime broker’s securities lending departments enable their clients to borrow securities directly from a prime broker to reduce financing costs and the risk of holding a long-term short-position.

Clients services

Prime brokers will have dedicated client services departments to provide back-office support for their clients to handle complex corporate actions, clearing issues, and general account management.

Risk management & financing

Clients of prime brokers can manage cross-exchange positions with SPAN margin facilities to ensure minimal margin requirements on hedged and offset positions with overall portfolio risk management.

Reporting & portfolio technology

A hedge fund can outsource the proper compliance and regulatory processes needed to run a hedge fund to their prime broker through consultancy services and risk management technology.

Capital introduction

One of the major value adds of prime brokers is their network of clients. Hedge funds can take advantage of a prime broker’s network to generate an inflow of capital and new business and increase their visibility.

Market access

Prime brokers cover all the major asset classes including:

• Forex Trading
• Equity Trading
• CFD Trading
• Futures Trading
• Options Trading
• Bond Trading

Forex

Forex prime brokers provide access to tier 1 liquidity venues with low latency and execution facilities for institutional forex traders as well as small brokers, funds and banks. Forex prime brokers can also provide pre-trade risk analysis and control for multiple liquidity providers cross margining and collateral reducing the need for additional credit lines.

Equities

Equity prime brokers provide their clients with direct market access to global equity markets and stock exchanges. Hedge funds can trade physical equities (shares) or DMA CFDS through an equity prime broker directly or through give-up agreements with executing brokers. Equity prime brokers also prove corporate action services and stock lending services (for short positions) as well as access to IPOs and new issues.

Direct market access

Prime brokers provide direct market to the underlying markets their clients trade derivatives contracts on. DMA (Direct Market Access) is available on equities through stock exchanges, commodities and indices through futures and options exchanges foreign exchange through multiple liquidity providers.

CFD (contracts for difference)

Prime brokers that offer CFDs (contracts for difference) enable their clients to trade directly on a stock exchange’s order book by buying and selling the underlying shares and wrapping the client’s positions in a CFD. This enables hedge funds to build up large equity positions without having to disclose underlying ownership. Prime brokers may also allow clients with large equity CFD positions to vote on corporate actions by taking instructions to vote a specific way on their client’s behalf.

Futures & Options

Futures brokers and options prime brokers provide direct market access to futures exchanges like ICE, CBOE, EUREX and CME. Futures and options prime brokers will either deal direct for customers or act as a middle man for smaller brokerages that use a prime brokers exchange membership to provide access to the exchange for their clients.

Clients

Boutique prime brokers

Boutique prime brokers can provide an entire operational framework and reading infrastructure for small and start-up hedge funds that are too small for tier 1 prime brokers. Boutique prime broker will often have direct relationships with larger prime brokers and resell services on a wholesale basis to their clients.

Mini prime brokers

A mini prime broker is simply a prime broker that accepts small institutional accounts. Mini prime brokers are more appropriate for start-up and new hedge funds. Compare the best UK based mini prime brokers authorised and regulated by the FCA here. You can switch to a mini prime broker that offers the type of investment that you need for your hedge fund.

Small hedge funds

If you have a small hedge fund take you can find a mini prime broker here. We work with the best prime brokers for small to medium sized hedge funds that can assist with your trading and fund strategy, including custodian services, regulatory umbrellas, research, analysis and outsourced back office systems.

Start-up hedge Funds

The top tier prime brokers are shutting down all their smaller accounts so start up hedge funds need a mini prime broker or mid-tier prime broker. Our prime broker finder tool can help your start up hedge fund find top prime brokers that are most appropriate for your investment strategy.

Large hedge funds

A hedge fund prime broker is the main account a hedge fund holds it’s positions with. Hedge funds may use executing brokers for buying and selling positions and then give up those positions to their main account at the end of the day.

Prime of prime brokers

A prime of prime broker will provide retail brokers with market access. This is common in CFD and Forex platforms where the forex brokers act more as marketing matching and the prime of prime broker provides the liquidity back office, platform and administration of the accounts.

FAQ:

How to choose the best prime broker

Good Money Guide can help you find the right prime broker with our prime broker finder tool. You will have a few questions to answer about the size of your hedge fund, your main investment methods and how often you trade, as well as any additional features that you may require. The finder tool will take about 10 minutes to complete.

What is a mini prime broker?

A mini prime broker is simple a prime broker that accepts small institutional accounts. Mini prime brokers are more appropriate for start-up and new hedge funds. Use our comparison tables to compare the best UK based mini prime brokers authorised and regulated by the FCA. Choose or switch to a mini prime broker that offers the most markets, best pricing and client security.

Can I see a list of prime brokers

Prime brokers are for institutional accounts so there is not a definitive list of prime brokers. However, with our prime broker comparison service, you can choose from prime brokers which may suit your needs and which can make it easier to choose the best prime broker for you.

Which are the top prime brokers for start-up hedge funds?

The top-tier prime brokers are shutting down all their smaller accounts so start-up hedge funds need a mini prime broker or mid-tier prime broker.

Our prime broker finder tool can help your start-up hedge fund find top prime brokers that are most appropriate for your investment strategy.

Which are the best prime brokers for small hedge funds?

If you have a small hedge fund take you can find a mini prime broker here. We work with the best prime brokers for small to medium-sized hedge funds that can assist with your trading and fund strategy, including custodian services, regulatory umbrellas, research, analysis and outsourced back-office systems. Use our comparison tables to compare the best UK-based mini prime brokers authorised and regulated by the FCA. Choose or switch to a mini prime broker that offers the most markets, best pricing and client security.

How do prime brokers make money?

Prime brokers make money by charging a fee or commission for facilitating the transactions for the funds that they manage. This fee is normally called a “spread”.

What is an FX prime brokerage?

An FX prime brokerage can offer access to the currency markets around the World at the best prices, as well as funding and clearing services to foreign exchange traders. In addition to the provision of securities, collateral and operational efficiencies there can be many other benefits for forex traders.

Why are large prime brokers kicking out small hedge funds

Larger prime brokers focus on providing wholesale services to large clients who can then provide the most relevant version of a large prime brokers services to the end client. This enable large prime brokers to focus on their core clients and smaller prime brokers to provide a more appropriate bespoke service to small hedge funds and traders.

Is a proprietary trading firm a prime broker

While some prime brokers are proprietary trading firms, that does not make all proprietary trading firms prime brokers. A proprietary trading firm is a firm that trades it’s own money, whereas a prime broker is a firm that providers brokerage services to traders, funds and smaller brokers reselling their services.

Can funds use multiple prime brokers?

Yes, funds can transact and execute trades through more than one prime broker. However, funds will have to nominate a single prime broker as their main account.

What’s the difference between a prime broker and an executing broker?

A prime broker is a funds main account whereas an executing broker is another broker a fund deals with that will execute orders for them and give them up to the main prime brokerage account.