Prime brokerage accounts

Prime brokerage accounts appoint one central broker for a customer, with many other brokers actually executing trades. The prime broker, which is always a financial firm, acts as the main point of contact for their client (usually a hedge fund). In addition to managing the relationship, the prime broker maintains custody and all recordkeeping of the client’s assets.

When the client wants to perform a transaction, they utilize the services of various brokers. Hedge funds notoriously prefer certain firms for specific transactions. For example, a hedge fund may prefer TD Ameritrade to do its stock trades, Fidelity to do its bond trades, and Charles Schwab to do its options trades.

Regardless of how many brokers actually end up doing trades for the client, all assets are maintained by the prime broker. The client only deals with one financial firm, although their trades are going to various places. Additionally, the client usually saves on interest if utilizing margin loans all through one firm as financial firms charge lower margin interest rates for larger loans.