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 provide corporate action services and stock lending services (for short positions) as well as access to IPOs and new issues.
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What is equities trading in prime brokerage?
Equities trading in prime brokerage gives hedge funds, asset managers and other institutional investors access to global stock market liquidity, professional execution and the technology needed to trade large or complex equity positions efficiently.
A key part of the service is liquidity. Institutional investors often need to buy or sell positions that are too large to execute through a standard trading platform without moving the market. Prime services providers can use market-making capabilities and relationships with other market participants to source liquidity.
Equity execution can be provided on either a high-touch or electronic basis. High-touch agency trading involves working directly with institutional traders who can manage large or complicated orders, source counterparties and attempt to minimise the market impact of a trade. Electronic execution instead allows managers to route orders using trading platforms, algorithms and customised order parameters.
Prime brokers can also provide block trading, which is particularly useful when a fund wants to transact a substantial position without sending the entire order directly into the public market. Pre- and post-trade analytics and transaction cost analysis (TCA) can then help managers assess execution quality.
When comparing prime brokers for equities trading, funds should therefore consider market coverage, available liquidity, block-trading capabilities, high-touch expertise, algorithms, execution technology, TCA and post-trade clearing and settlement, rather than simply comparing dealing commissions.