What clients want from a Prime of Prime

Natallia Hunik

“By ignoring the retail brokers that are “Prime of Primes” purely for the purpose of marketing themselves, we find that there are only a few remaining who are offering real Prime of Prime services” – Natallia Hunik, Global Head of Sales, Advanced Markets & Fortex

Prime of prime relationships and the future

Prime of Prime in FX has undergone a lot of changes in the past few years, yet it remains one of the most highly demanded services in today’s marketplace. Prime of Prime’s role is to extend interbank market access to clients who do not have access to credit.

To put it another way, it helps create direct market access for those clients who do not meet the stringent collateral and credit criteria that’s needed in order for them to establish their own, direct, prime broker relationship with a bank. The main value that a real Prime of Prime delivers is non-latent access to institutional trading, in a secure and regulated environment.

Currently, there are a number of firms appearing in the market with the word “Prime” in their name, but beware, all is not as it seems. Anyone can use the word Prime and promise that they’re a real “Prime of Prime” but in reality very few are, and even fewer can actually deliver on those promises.

Just look at the recent “STP” phenomena where countless retail brokers claimed that they offered STP accounts with extremely low spreads, high leverage and deposit bonuses, which we all know is a complete misnomer. A similar pattern is happening with Prime of Prime where retail brokers, without a Tier 1 bank prime broker relationship, are creating “Prime” brands in an attempt to capture some of the more sophisticated clients.

By ignoring the retail brokers that are “Prime of Primes” purely for the purpose of marketing themselves, we find that there are only a few remaining who are offering real Prime of Prime services. Among those who actually have access to Tier 1 Prime Brokers, there are even fewer actually sending trades to the market; instead they are internalizing their flow.

it is evident that, due to the mixed messages coming from all sides, there is a general lack of understanding about Prime of Prime; what it is supposed to accomplish and when you may need one.

Essentially, here is the formula I’ve outlined for the truly successful prime of prime:

Real Prime of Prime = B2B + PB + Reliable Technology + STP

1) Ideally, the prime of prime is B2B-only, to avoid any conflict of interest between the broker and its prime of prime liquidity provider.

2) A real Prime of Prime needs to have a Tier 1 Prime Brokerage relationship – (example: Advanced Markets is primed by UBS AG)

3) Reliable technology – Is the vendor dependent on 3rd party technology? If so, which one? (You may want to conduct due diligence on the vendor separately). Do they have their own technology? As a client, some of the key things that you should be looking for from the technology are stability, scalability and robustness.

4) A real Prime of Prime must be STP-only (straight-through processing) indicating that they will be actually sending your trades directly to the market and not managing all, or some, of the risk in-house.(the whole point of entering into a prime of prime relationship).

Why does a retail FX broker have a need for a prime of prime?

capture

What are brokers and asset managers looking for in their Prime of Prime partner’s offering?

Ideally, clients (retail FX brokers, asset managers, family offices) should be looking for a prime of prime that can address their needs and solve their problems, but also add value and help scale and grow their business.

Before starting a relationship with a prime of prime/liquidity provider, the broker should be looking for a reliable, reputable, licensed partner in order to, first, ensure the safety of clients’ money. As we all know, history is the best predictor of the future, so it is imperative that the company has a clean track record and an impeccable reputation.

Quality of fills, execution, price feed stability and overall trading conditions are on the list of priorities for FX businesses when selecting a PoP partner.

Often times, clients make the mistake of evaluating an offering based on spreads and commissions and end up being misled into believing that they can get fills at the advertised prices. Many “quasi” prime of primes are offering tight spreads that turn out to be only applicable for tiny trade sizes and often requotes, rejects and slippage make the total overall spread cost significantly higher than advertised.

capture-1

In conclusion, a knowledgeable prime of prime will engage in an educational conversation, by demonstrating use cases on how the offering is structured, its benefits, infrastructure specifics and delivery methods.

The professional team at the prime of prime brokerage will not pressure the prospect, or try to lure them in using price dumping or heavy discounts, but will instead listen to them and help tailor a solution to their issues and needs.

Read this next

Digital Assets

Cathie Wood’s sponsored Bitcoin ETF sees historic $200 million inflows

The ARK 21Shares Bitcoin ETF (ARKB), co-sponsored by Cathie Wood’s ARK Invest, registered historic inflows exceeding $200 million on Wednesday, signaling a robust appetite among investors for Bitcoin-centric investments.

Digital Assets

Sam Bankman-Fried might see his 25-year sentence halved

Sam Bankman-Fried, the founder of the failed cryptocurrency exchange FTX, was sentenced to 25 years in federal prison by a Manhattan court on Thursday. This comes after he was convicted of defrauding customers and investors, with Judge Lewis Kaplan highlighting the potential future risks posed by Bankman-Fried.

Technical Analysis

EURJPY Technical Analysis Report 28 March, 2024

EURJPY currency pair under the bearish pressure after the pair reversed down from the major resistance level 164.25, which also stopped the sharp weekly uptrend at the end of last year,

Digital Assets

BlockDAG’s Presale Hits $9.9M, MultiversX & MINA Price Predictions Show Green

Read about BlockDAG’s promising $10 prediction and insights on MultiversX Price Prediction as MINA’s potential unfolds.

Digital Assets

Rockstar Co-Founder and All-star Line Up Join Advisory Board to Take Metacade into Post Beta Orbit

Metacade, the revolutionary Web3 gaming platform, prepares to streak out of beta with a slew of ground-breaking initiatives that will redefine the way blockchain games are developed.

Retail FX

Prop firm The Funded Trader shuts down, claims relaunch in April

Prop trading firm The Funded Trader has ceased all operations, with claims for a relaunch in the near future.

Digital Assets

Ethereum-Based Tokenized Real Estate Platform USP Launches On Republic

How This Californian Startup Is Revolutionizing Real Estate Investment through Ethereum-Based Tokenization.

Digital Assets

Sui Spikes in Weekly DEX Volume, Joins Top 10 of All Blockchains

March DEX volume on Sui stands at over $2.88B – up more than 49% from February – with decentralized exchange Cetus and wholesale liquidity layer DeepBook leading.

Digital Assets

Prisma Finance suffers $10 million crypto exploit, attack ongoing

Liquid staking protocol Prisma Finance fell victim to a security exploit on March 28, resulting in nearly $10 million in Prisma mkUSD and wrapped stETH being stolen by hackers.

<