Tier 1 Prime Brokerage Crunch: Inevitable Crossroads for FX and CFD Brokers

Natalia Zakharova Head of Sales at FXOpen

The prime brokerage industry is undergoing a significant transformation as tier-1 prime brokerages exit the sector and cease offering prime brokerage facilities to retail forex and CFD brokerages.

This shift has created a challenging environment for FX and CFD brokers, which some industry participants view as intensifying the pressure on their operations.

The move away from providing direct counterparty credit by tier-1 prime brokerages was an anticipated development.

Increased capital requirements set by major market makers in the tier-1 banking sector have forced many prime of prime brokerages to provide substantial capital, only to find that retail brokers primarily seek price feeds and prefer to conduct market-making in-house. Additionally, the entrance of non-bank market makers, exemplified by the rise of companies like XTX Markets, has further emphasized the inevitability of this shift.

The Inevitable Transition

The gradual withdrawal of tier-1 prime brokerages from offering direct counterparty credit to retail forex and CFD brokerages was a foreseen outcome in the industry.

Many of the largest market makers in the tier-1 banking sector have steadily increased the amount of escrowed capital required to maintain FX brokerage counterparty credit agreements.

This has put prime of prime brokerages in a difficult position, necessitating significant capital investments amounting to tens of millions of dollars or pounds to sustain these agreements.

Unfortunately, prime of prime brokerages have found that many retail brokers simply seek price feeds from their liquidity provider to access accurate market prices. Retail brokers then opt to perform market-making in-house by warehousing trades. This approach often provides better execution speed and eliminates delays between a client sending a trade and the broker placing it with a Prime of Prime, minimizing rejections, but is not a profitable enterprise for banks or prime primes.

Non-Bank Market Makers and Changing Dynamics

The entrance of non-bank market makers has played a significant role in reshaping the prime brokerage landscape.

Companies like XTX Markets have quickly risen to the top and gained substantial market share, highlighting the inevitability of the shift away from tier-1 prime brokerage divisions of banks.

These non-bank entities, leveraging advanced technology and sophisticated trading algorithms, have disrupted the traditional market structure. Their ability to provide competitive pricing and faster execution has attracted many retail brokers who are seeking to enhance their operational efficiency and improve client satisfaction.

Benefits and Challenges for FX and CFD Brokers

The changing landscape of prime brokerage brings both benefits and challenges for FX and CFD brokers. On one hand, the transition allows brokers to streamline their operations by obtaining price feeds directly from liquidity providers, enabling faster and more efficient market making. This approach reduces latency and potential rejections, resulting in improved execution speed and a smoother trading experience for clients.

However, the shift also places additional pressure on FX and CFD brokers. They now need to ensure they have robust in-house market-making capabilities to handle the increased responsibilities previously handled by tier-1 prime brokerages.

This requires investment in technology infrastructure, risk management systems, and skilled personnel. Furthermore, the competition from non-bank market makers demands that brokers continuously refine their offerings and maintain a competitive edge in an evolving market and ensure they have a method of adhering to correct market prices which have until now been arrived at via aggregated price feeds from prime brokers.


The prime brokerage industry is undergoing a long termtransformative phase as tier-1 prime brokerages step away from providing direct counterparty credit to retail forex and CFD brokerages.

This shift, driven by increased capital requirements and the emergence of non-bank market makers, was an anticipated development.

While it poses challenges for FX and CFD brokers, it also presents opportunities for operational optimization and improved execution speed. Adapting to the changing dynamics of prime brokerage will require brokers to invest in advanced technology, develop in-house market-making capabilities, this could position the FX industry as no longer reliant on legacy single dealer platforms used by Tier 1 banks or have to be subservient to the Tier 1 sector by lodging huge sums of capital in order to maintain a counterparty credit agreement.

We are the fintech industry and should be innovative enough to step up and be more independent of large institutions that demand a lot but provide little and in doing so, pass the extra efficiency and cost saving onto our collective clients.


Written by Natalia Zakharova, Head of Sales at FXOpen

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