FX prime brokers play an integral role in currency markets by providing the clearing services and credit that financial institutions and exchanges from around the world need to trade with each other. They stand as an intermediary between funds and two important sets of counterparties: institutional investors with shares to lend for short selling, and commercial banks with money available for margin loans. But the rapid growth of global FX markets, which are now worth more than $5 trillion a day, and the increasing diversity of players trading in them has forced FXPBs to evolve far beyond their original functions from when they first entered the scene in the 1990s.
Prime brokers now have to cater to a broader range of investors all with varying needs, including other brokers, high-volume traders, hedge funds, asset managers, CTAs and smaller financial institutions
“Clients’ growing need for a more personalised service has opened up a greater role for prime brokerages, which provide a comprehensive package of services across multiple asset classes,” said Benny Menashe, Chief Executive of Finotec, a boutique London-based FXPB. “As a ‘boutique’ prime broker, Finotec provides small to medium funds with the advantages of first-tier bank prime brokerage. The popularity of boutique FXPBs owes much to the promise of managing operational risk and reducing costs,” he adds. And it’s not just the clients that have have become more varied: the range of liquidity pools available has also multiplied, meaning FXPBs also play a crucial role in ensuring clients are connected to the right venue for their trading strategy
Full article to be published on e-forex magazine UK October issue