There is significant value in having direct access to quality execution and sufficient liquidity. Prime brokers offer tighter spreads, lower rejection rates and improved execution over retail forex brokers.
However prime brokerages typically do not permit individual accounts and so one option for Professional Forex Traders who wish to be able to trade under the best conditions would be to establishing a proprietary trading corporation. It is an easy solution to implement which also provides personal protection against margin and trading liabilities.
But is it really worth the hassle? This blog post will suggest four key reasons why we think it is a worthwhile endeavor and leave it to each trader to make an objective decision. By accessing wholesale liquidity through a Prime Broker, Professional Forex Traders can leverage the following four major benefits:.
With a small investment in the creation of a company, any Professional Forex Trader can improve their trading experience and significantly decrease their forex transactions costs. By accessing wholesale liquidity through a Prime Broker, Professional Forex Traders can leverage the following four major benefits: As a neutral liquidity source, Prime Brokers have an incentive to facilitate as much trading activity as possible from their customers as possible. They are compensated by a prime brokerage fee, which is ususally charged on a per-million basis each month.
Because they typically work only with institutions, they do not have the huge overhead of employees and fixed costs that retail brokerages must bear in order to service a large number of clients.
As a result, they are able to offer institutional spreads to their customers - as much as pips tighter than retail accounts - and earn a respectable profit because of their lower cost-basis. Access to multiple liquidity providers is one of the biggest advantages of trading via a Prime Broker. This will allow you to place larger orders and trade more efficiently during periods of low liquidity because there are multiple liquidity providers effectively mutualizing the risk of these transactions - each of whom have a large pool of internal transactions to match your trades against.
Again, having access to multiple liquidity providers can only improve execution rates, especially during more volatile markets or fundamental news announcements, when the risk for any single trading counterparty would substantially increase.
This is because if the retail brokerage were to execute his customer's order at the requested price, without being able to immediately offset that risk in the interbank market at a better price, it would mean a loss for the broker. Prime Brokerages typically have liquidity relationships that can scale with the growing volumes of a successful trader and the trader would enjoy superior execution at all times of the day as a result. Lower spreads are only part of the equation here.
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