If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
A prime brokerage agreement is a contract between an investment bank and a large client, such as a hedge fund. Through this agreement, the bank provides special services to the client in exchange for its prime brokerage fees.
This type of deal isn't available to everyday investors, but it also isn't necessary for that type of client. Most investors have everything they need with one of the best online stock brokers.
The standard online brokerage account won't cut it for sizable clients, though. Larger clients need a wide spectrum of financial services, and that's where a prime brokerage agreement comes in.
A prime brokerage is a package of services offered by some major investment banks. These services support client activities in the financial market.
Services offered by a prime brokerage can include:
In many cases, a prime brokerage agreement also includes operational support. Although hedge funds are some of the busiest traders and can have substantial money under management, they're often small in terms of personnel. If they don’t have enough bodies to do the often great amount of direct work required to trade securities, they usually outsource it.
Once you’ve chosen one of our top-rated brokers, you need to make sure you’re buying the right stocks. We think there’s no better place to start than with Stock Advisor, the flagship stock-picking service of our company, The Motley Fool. You’ll get two new stock picks every month, plus 10 starter stocks and best buys now. Over the past 17 years, Stock Advisor’s average stock pick has seen a 322% return — more than 3x that of the S&P 500! (as of 11/10/2022). Learn more and get started today with a special new member discount.
A prime brokerage agreement is between two parties: the investment client and the financial institution offering the prime brokerage services.
Hedge funds are typical prime brokerage clients, although other large professional investors can also use this type of service. Legally, there's a minimum requirement of $500,000 in equity to get prime brokerage services. Almost all clients are much larger. It's common for clients to have $50 million or more in equity.
As part of the prime brokerage agreement, the client pays fees. The amount depends on a number of factors, which can include but are not limited to:
With the amount and depth of prime brokerage services, there aren’t a lot of companies that can provide them. For the most part, it's the domain of big investment banks.
The most high-profile players in the prime brokerage game are familiar names in the world of finance. Here are six big financiers that offer prime brokerage services:
Unless you run a hedge fund or some other type of high-volume securities trading operation, it’s extremely unlikely you require a prime brokerage agreement. Even day traders who transact several times daily don’t have this need, since their buying and selling tends to be fairly straightforward.
A traditional brokerage is the right choice for most. If you're new to investing, consider stock brokers for beginners. These have everything you need to get started.
Perhaps your trades will go so well that you’ll set up your own hedge fund or large-scale trading operation. In that case, you might very well need a prime brokerage agreement. But until then, you shouldn't need to worry about the details.
Uncover the names of the select brokers that landed a spot on The Ascent's shortlist for the best online stock brokers. Our top picks pack in valuable perks, including some that offer $0 commissions and big bonuses.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2022 The Ascent. All rights reserved.