Prime Brokerage: The 9 Best Prime Brokers in 2024

Best Prime Brokers List: Prime Brokerage Services for October 2024:

1. IG
2. Goldman Sachs Prime Brokerage
3. Morgan Stanley Prime Brokerage
4. J.P. Morgan Prime Brokerage
5. Credit Suisse Prime Brokerage
6. Bank of America Prime Brokerage
7. UBS Prime Brokerage
8. BNP Paribas Prime Brokerage
9. Barclays Prime Brokerage

Prime Brokers' Comparison Chart October 2024

IG: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of IG retail investor accounts lose money when trading spread bets and CFDs with IG. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Prime Brokerage Rankings for October 2024

IG is a great share trading platform for beginners thanks to its user-friendly interface and extensive educational resources.

Pros of IG include a wide range of trading instruments and markets, as well as the ability to access multiple account types and trading platforms. The platform also offers a demo account for beginners to practise trading strategies before investing real money.

However, IG isn’t the cheapest share trading platform, with relatively high trading fees and a minimum deposit requirement of £250 when paying by credit/debit card or PayPal.

In terms of additional fees, IG charges a commission fee for share trading, starting from £8 per trade. There’s also a custody fee of 0.25% per year for holdings of £250 or more.

Overall, IG is a solid choice for beginners looking for a user-friendly platform with extensive educational resources, but investors should be aware of its fees and minimum deposit requirements.

Despite its role in the 2008 recession, Goldman Sachs is a leader in hedge funds and prime brokerage services.

It offers:

• Agency securities lending
• Capital introduction
• Clearing
• Customized client services
• Derivatives clearing services
• Futures
• Hedge fund consulting
• Reporting and technology
• Risk management and financing
• Securities lending
• Synthetics

Client feedback states that it offers competitive rates, as well as availability and stability of borrowing.

In a 2020 Trade News survey, Goldman Sachs averaged:

• 5.83 overall
• 5.66 for trading and execution
• 6.03 for stock borrowing and lending
• 6.08 for foreign exchange prime brokerage
• 6.14 for Delta 1, swaps and financing
• 5.42 for fixed income
• 5.64 for OTC clearing
• 5.84 for listed derivatives

Morgan Stanley offers:

• Wealth management
• Investment management
• Research
• Sustainable investing
• Inclusive innovation

The 2020 Trade News survey scored Morgan Stanley:

• 5.88 overall
• 6.04 for trading and execution
• 6.23 for stock borrowing and lending
• 5.25 for foreign exchange prime brokerage
• 6.27 for Delta 1, swaps and financing
• 5.58 for fixed income
• 5.95 for OTC clearing
• 5.81 for listed derivatives

J.P. Morgan is considered Goldman Sachs's closest rival when it comes to prime brokerage.

In 2019 it surpassed the $500 billion milestone and the company reports 25% year-on-year increases.

Its prime services include:

• Insights
• Finance solutions
• Capital Advisory Group
• Derivatives clearing and intermediation
• Customer service

However, client feedback claims that it does not offer as much support to smaller accounts and prefers to focus on where the big money is.

The 2020 Trade News survey scored J.P. Morgan:

• 5.64 overall
• 5.25 for trading and execution
• 5.74 for stock borrowing and lending
• 5.00 for foreign exchange prime brokerage
• 5.56 for Delta 1, swaps and financing
• 5.52 for fixed income
• 6.38 for OTC clearing
• 6.00 for listed derivatives

This Swiss bank has a reputation for taking a risk too far, and 2020 saw it enter several legal battles.

But for those who have no fear of risk, Credit Suisse's prime services include:

• Finance, custody and clearing services
• 24/7 support
• Market access, execution and reporting
• Securities lending
• Derivative services
• Capital services
• Consultancy
• Risk advisory

The 2020 Trade News survey scored them:

• 5.28 overall
• 5.63 for trading and execution
• 5.32 for stock borrowing and lending
• 6.33 for foreign exchange prime brokerage
• 5.44 for Delta 1, swaps and financing
• 4.33 for fixed income
• 5.20 for OTC clearing
• 4.68 for listed derivatives

Bank of America promises to deliver expert institutional advisory services and global coverage. Its prime services are categorized into core and value-added.

Its core services are:

• Financing
• Securities lending and Delta 1
• Client services
• Reporting and technology

The value-added services are:

• Business consulting
• Capital strategy
• Structured finance

In the 2020 Trade News survey, Bank of America scored:

• 5.02 overall
• 5.21 for trading and execution
• 5.27 for stock borrowing and lending
• 3.75 for foreign exchange prime brokerage
• 6.12 for Delta 1, swaps and financing
• 4.73 for fixed income
• 5.00 for OTC clearing
• 5.09 for listed derivatives

UBS prides itself on building long-term successful relationships with funds of all sizes and types.

Its services are tailor-made and adapt to your growth.

Services include:

• Global clearing
• Custody
• Flexible financing solutions
• Full accounting support
• Access to foreign exchange and fixed income platforms
• Business consulting
• Capital introduction
• Cross-product risk-based lending
• 24/7 support

The firm did not feature in the 2020 Trade News survey. However, in a similar hedge fund survey conducted in 2016, UBS scored 5.61 for customer service, 5.60 for reporting and 5.62 for value.

In 2020, French bank BNP Paribas took over the German Deutsche Bank's prime brokerage services.

Past clients have stated that BNP is professional, efficient and that the customer service team is incredibly knowledgeable.

The technology and software the bank uses are reported as being flawless with little to no mistakes.

The prime broker services include:

• Financing
• Securities lending
• Technology and reporting
• Execution services

In the 2020 Trade News survey, BNP Paribas scored:

• 6.26 overall
• 6.05 for trading and execution
• 6.16 for stock borrowing and lending
• 6.48 for foreign exchange prime brokerage
• 5.96 for Delta 1, swaps and financing
• 6.48 for fixed income
• 6.42 for OTC clearing
• 6.24 for listed derivatives

These results make it one of the best-performing prime brokers of 2020.

As another British bank gaining popularity in prime brokerage, Barclays now has a place in the middle of the industry league tables.

Its strength is its securities lending, but other services include:

• Equities and fixed income financing
• OTC clearing
• Futures and forex
• Industry insights and analytics

Its Trade News scores are:

• 5.75 overall
• 5.71 for trading and execution
• 5.81 for stock borrowing and lending
• 5.88 for foreign exchange prime brokerage
• 6.18 for Delta 1, swaps and financing
• 5.83 for fixed income
• 5.67 for OTC clearing
• 5.18 for listed derivatives

What Is Prime Brokerage?

A prime brokerage is a collection of services offered to hedge funds that regular brokers and individual traders do not have access to.

The purpose of these services is to help hedge funds access to research, borrow securities or cash and find new investors. It also allows them to outsource many of their investment activities and focus on strategy and goals. Prime brokers are usually investment banks or financial institutions. They act as a central broker, facilitating and co-ordinating complex and high-value trades.

Generally, only the highest-grossing financial institutions offer prime brokerage services, such as Goldman Sachs and Morgan Stanley, as the institution needs to meet a minimum account size.

What Is Included in Prime Brokerage Services?

Prime broker services are usually tailor-made and customized. However, all brokers offer similar fundamental services, including:

• Acquiring new investors – Usually termed as capital introduction services, a broker will set up meetings and deliver presentations to those interested in investing.

• Short-selling and borrowing cash – This enables the hedge fund to get extra money and increase returns. Short-selling is a complex trading strategy that comes with a lot of risks. It was a contributing factor towards causing the Great Depression and should only be used by experienced traders.

• Providing data, research and analytical reports – Prime brokers have robust research departments with a high data turnover. As trades happen globally, customer support is usually 24/7, with up-to-date information being available at all times.

• Dedicated advisors – Financial regulations are extensive, complex and constantly changing. Hedge funds may not be able to keep up with regulations or understand them properly. Dedicated advisors know all the regulations applicable to their clients.

• Custodians of assets – Being a custodian allows the broker to move far quicker on trades and removes some of the decision-making from the hedge fund. As the broker has access to the assets, financial reporting also becomes simpler.

What Does a Prime Broker Do? (With Examples)

Let's say that a hedge fund wants to execute a trade for a large number of shares of a company's stock.

The hedge fund may not have enough cash on hand to purchase all the shares it needs, so it contacts a prime broker to help facilitate the trade.

The prime brokerage may provide the hedge fund with financing to purchase the shares, using the hedge fund's existing portfolio as collateral.

The prime brokerage may also provide the hedge fund with access to its trading platform, allowing the hedge fund to execute the trade directly through the prime broker.

Once the trade is executed, the prime broker will typically handle the settlement and clearance of the trade, ensuring that the shares are properly transferred to the hedge fund's account.

The prime brokerage may also provide the hedge fund with a range of other services, such as securities lending, margin financing and risk management tools.

In exchange for these services, the prime brokerage will typically charge the hedge fund a fee.

This fee may be based on a percentage of the value of the trade, or on a flat fee basis.

The fee structure may vary depending on the services provided and the size of the trade.

Requirements for Prime Brokerage Accounts

Prime brokerage accounts are specialized accounts provided by financial institutions to serve the needs of professional traders and institutional clients.

The requirements to open an account may vary depending on the institution, but here are some general requirements:

Eligibility

Prime brokerage accounts are typically reserved for institutional clients and high-net-worth individuals.

Most financial institutions require clients to meet certain financial eligibility criteria before they can open a prime broker account.

Minimum Deposit

Prime brokerage accounts usually require a minimum deposit to open an account. This amount can vary significantly, but it can range from hundreds of thousands to millions of dollars.

Experience

Financial institutions may require clients to demonstrate a certain level of trading experience to qualify for a prime brokerage account. This can include providing information on previous trading experience, investment knowledge, and professional qualifications.

Trading Volume

Prime brokerage accounts are typically designed for high-volume traders. Financial institutions may require clients to demonstrate a certain level of trading activity or a minimum amount of assets under management.

Due Diligence

Financial institutions conduct thorough due diligence on potential prime brokerage clients before accepting them. This may include background checks, credit checks, and financial history checks.

Compliance

Prime brokerage clients must comply with various regulatory requirements, including anti-money laundering regulations, know-your-customer rules, and other compliance measures.

Legal Agreements

Prime brokerage clients may need to sign various legal agreements, including a client agreement, risk disclosure statement, and other documentation.

Overall, the requirements for opening a prime brokerage account are typically more stringent than those for retail trading accounts. It's important to do your research and carefully consider the costs and benefits of opening a prime brokerage account before making a decision.

How Do Prime Brokers Make Money?

The goal of any business is to make money, and financial institutions are no different.

Prime brokers make money through:

• Basic fees for custody, concierge and other core services
• The spread in interest rates between borrowing and lending transactions
• Collateral from their clients to use for their investment ventures

The latter is known as rehypothecation. The hedge fund or partner usually agrees to allow the prime broker to use collateral in return for a reduction of fees.

Hypothecation was very popular before the 2008 crash. After the Lehman Brother's collapse, hedge funds became more cautious of the risk of rehypothecation and began revoking permission.

Differences Between Prime Brokers and Other Financial Institutions

Prime Broker vs Executing Broker

An executing broker is a financial institution that executes trades on behalf of clients, typically retail investors or smaller institutional investors.

They do not typically offer the range of services provided by a prime brokerage, such as financing, securities lending and risk management.

The main difference between a prime broker and an executing broker is that the former provides a suite of services to larger institutional investors, while the latter primarily executes trades for retail investors.

Prime Broker vs Custodian

A custodian is a financial institution that holds and safeguards assets on behalf of clients.

They do not typically offer the range of services provided by a prime brokerage.

The main difference between a prime broker and a custodian is that the former provides a range of services to institutional investors, while the latter primarily focuses on custody and safekeeping of assets.

Prime Broker vs Market Maker

A market maker is a financial institution that provides liquidity to markets by buying and selling securities on a regular basis.

The main difference between a prime broker and a market maker is that the former provides a suite of services to institutional investors, while the latter primarily focuses on providing liquidity to the markets.

The financial institutions that offer prime brokerage do so because they are good at finance and investing.

But before making your final decision, consider the following:

Frequently Asked Questions

Final Thoughts

Regardless of the institution, prime brokers offer a high level of service and innovation.

Choosing the right one ultimately depends on:

• Which institute aligns with your values and mission
• Which provides the best package for you
• What your financial goals and strategies are

Before making any final decision, take the time to sit with the representatives, run through any scenarios you have, and ask all the questions you need.

WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.