Brokerage companies offer various trading and investing services using the digitalisation of platforms. Today, almost anyone can start trading by connecting to the internet and registering with a reliable broker.
However, brokerage services differ according to the level of assistance they provide and the inclusion of other financial services, like consultancy, custody and account management.
Prime brokers provide distinguished services from other brokerage firms, and they cooperate with large financial institutions and hedge funds to help them grow and improve their market share. So, how does prime brokerage differ from other brokers? We will explain in the following.
Defining Prime Brokers
Prime brokerage is the offering of multiple financial services together to large financial corporations. Prime brokers’ services are more inclusive than retail brokers, which suit hedge funds, banks and large investment firms.
Their services include account management, clearing services, liquidity provision, cashflow monitoring and more. Therefore, their role exceeds the sole function of executing market orders and making money from commissions.
Comparing Prime Brokerage Vs. Financial Institutions
Prime brokers may charge higher fees than the average brokerage firm because they provide more services that usually bring higher returns. Let’s compare prime brokers with other financial and trading firms.
Prime Brokers vs Executing Brokers
Prime brokers engage in trading activities and mediate between their clients and the markets, executing various orders and transactions, which are also performed by discount and all-service brokers.
However, prime brokers cooperate with their clients more than only giving them access to the market. This type of brokerage includes financial planning and market research for companies to make strategic decisions.
Prime Brokers vs. Market Makers
Market makers engage in financial markets through continuously buying and selling tradable assets, making them more available to participants and improving the market efficiency.
Prime brokers also perform similar functions by offering their clients cash borrowing and leverage trading, which can be used to execute significant market orders. These activities contribute to market liquidity and efficiency.
Thus, prime brokers operate in the financial and trading markets to ensure the well-being of their clients and the market.
Conclusion
Prime brokers work similarly to retail brokers while adding more services that suit individual clients and large corporations simultaneously.
Prime brokers are not only concerned with order execution and trading opportunities. They also provide financial planning, money management, cashflow monitoring, leverage trading, and other investing services.
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