Liquidity Comparison: Non-Bank vs Prime of Prime for Your Brokerage

Prime Rates (referred to alternatively as PRs) are country (and therefore currency) specific. Thus, Australian banks determine their country’s PR for loans in the Australian Dollar (AUD), as does the UK for loans in Sterling (GBP). When prime of prime determining the definition of Prime Rate, several considerable aspects must be addressed before it’s clear to corporate, retail borrowers and any investment-centric audience. The two words in the term – ‘Prime’ and ‘Rate’ – are pivotal to this conversation. Together, they intimate the concept relates to something crucial, especially ‘Prime’, which many interpret as “main, chief, key, central, foremost, or first”, according to Theasaurus.com.

Why choosing the NBLP may be the right decision for your business?

The retail broker handles individual clients and tries to attract more business. Good liquidity is the key to a high turnover on your trading platform and the influx of quality clients. And while these old commonplace truths hardly need to be explained to anyone, the confrontation between prime of prime and non-bank liquidity https://www.xcritical.com/ provider methods is a relatively novel issue. Moreover, we are increasingly noticing that many are misinterpreting the very concepts of PoP and NBLP liquidity, which can lead to poor choices or detrimental business consequences. The purpose of this publication is to provide a clear definition of what the first and second methods are and to highlight our arguments in favor of NBLP as the most promising way to collect liquidity for your FX business. In this instance, they internalise some of the trade flow they get from clients.

How to find a true Prime of Prime

Without PoPs, many mid-sized companies would struggle to satisfy their growing liquidity needs on the forex market. Suppose we have a company X that has started as a scrappy forex startup platform. In the beginning period, company X could get by with a minimum amount of financing and liquidity pools satisfied by retail brokerage agencies or individual investors. Prime brokers are tier-1 liquidity providers in terms of resource access and operational prowess. PoPs, on the other hand, are tier-2 liquidity providers, meaning they have indirect access to tier-1 liquidity through various prime broker partnerships.

Prime of Prime (PoP): What It is, How It Works, Example

If you have questions about how to organize independent liquidity aggregation on your platform, contact us and we will be happy to unfold a detailed presentation for you. For privacy and data protection related complaints please contact us at  Please read our privacy policy for more information on handling of personal data. For privacy and data protection related complaints please contact us at Please read our privacy policy for more information on handling of personal data. However, PoPs have limitations and might not be the best option for forex clients on the top of their respective niches. If your circulation is well in the millions and your budgetary capabilities exceed six-figure monthly costs, PoPs might not have enough resources to accommodate your colossal needs.

What is the difference between a PoP broker and a retail Forex broker?

In this article, we’ll focus on the US (USD), with references to other situations later on – USD being an anchor denomination for all major currency pairs traded on international currency exchanges. I took this experience with me, and created an audit of sorts, “Review your Liquidity Provider” to help the FX marketplace understand who exactly is your broker, who are you actually dealing with. This audit will serve as a guide of sorts to gauge whether your broker is a true Prime of Prime or an imposter. After a few polite introductions, I quickly realized that, based on his audited returns, the new fund manager was proficient in trading the FX market. The detailed description of the fund’s fundamental and technical trading strategies was welcoming to hear. Liquidity Finder endeavors to keep all information displayed on these pages accurate and up to date but we cannot guarantee that the page will be error-free or up to date.

The net result is that first-world countries facing the same economic pressures react similarly. Articles and financial market analysis on this website are prepared or accomplished by an author in his personal capacity. The views and opinions expressed in postings on this website belong solely to the author and may not reflect those of the company’s management or the official position of the company. The contents of the site do not constitute financial advice and are provided solely for informational purposes without taking into account your personal objectives, financial situation or needs. Soft-FX is a software development and integration company and does not provide financial, exchange, investment or consulting services. For instance, the filter system built into the TickTrader Liquidity Aggregator allows setting the slippage percentage that the broker is ready to tolerate when working with providers.

They will also have higher account opening standards, more in-depth due diligence as compared to a retail FX broker and higher deposit requirements. As banks are raising their criteria when it comes to accepting new clients, PoP services are gaining more popularity. You effectively have a chain of companies that are all acting like brokers to each other. There are then companies below the prime of prime who use its services but then provide the same services to FX/CFD brokers. They use that feed to create their ‘own’ price for the products they offer clients and then take the other side of all client trades, with no offsetting trades placed with the prime of prime.

After they hit that limit, they place trades with their prime of prime broker to hedge out their risk. PoP firms level the playing field for mid-sized forex companies that wish to acquire large liquidity reserves and other tailored services of tier-1 brokerages but don’t quite meet the eligibility requirements. Retail brokers mostly provide trade execution and processing services, whereas prime brokers offer full-stop forex services, ranging from liquidity sources and consultancy to portfolio management.

In simple terms, PoPs understand that most of their clients require a fraction of the massive tier-1 liquidity pools. So, to satisfy both parties, PoPs have devised a model to divide the liquidity pools into smaller tranches and package them for mid-sized businesses. Despite their impressive size and extent of operations, most of these companies were still not eligible for a prime brokerage partnership, which created an apparent demand-supply gap in the market. Research is quite straightforward, helping companies like hedge funds to acquire more in-depth knowledge on their respective niche and local markets. Consultation is often mixed with research, as PBs provide detailed reports of their findings and analyse the client companies thoroughly.

If your scope and size are still considered on the lower or middle end of the forex market, PoP firms are the best option overall. They will supply your forex company with sufficient liquidity, consultation and risk management services at an affordable price, producing a net profit. It doesn’t make sense to provide massive research and consultation services to a mid-sized company that operates in a more limited region and has a lower competition level than industry leaders. So, PoPs have a more flexible approach to offering services, which positively impacts their pricing packages. This revenue stream is similar to prime brokerage clients that require liquidity, with the only difference being that for market makers, the client is the general market.

Companies that accumulate and distribute liquidity to market participants are responsible for filling the supply and demand holes wherever and whenever necessary. As a result, the market remains liquid and doesn’t experience numerous problems. Filippo Ucchino has developed a quasi-scientific approach to analyzing brokers, their services, offers, trading apps and platforms.

These are not Prime of Primes that send transactions to the market and serve as facilitators between banks and clients, but retail non-bank market makers. To an untrained eye, Prime of Prime firm offerings are quite similar to the Prime brokerage model. However, PoP companies serve a more diverse client base and accommodate various demands. PoPs provide all the familiar services of tier-1 prime brokers, including research, consultation, asset management and liquidity sourcing. However, all of these services have been modified to fit the needs of smaller entities. Conversely, retail clients can’t afford to partner with prime brokerages, as each of their tailored services starts at a five-figure pricing fee.

PBs mainly offer bundled deals to their clients, allowing them to acquire a competitive advantage in the field and strengthen their forex-related operations on several fronts. Tier 1 banks tend to be risk-averse, and therefore demand strict financial protocols and risk management from their clients. A retail broker may not meet these rigid standards and therefore may not be able to trade directly with the tier 1 bank. PoP does meet these standards, is a client or partner with the tier one banks, and allows the retail broker to trade through them with the tier 1 bank.

However, the personalisation and the scope of services differ wildly in this case. Finally, hands-on asset management is an option to outsource the entire portfolio management process to PBs effectively. This service is an excellent option for institutions that don’t have a lot of time or in-house expertise to handle a forex portfolio. They allow multiple institutions, companies and whale traders to accumulate a massive forex capital, sufficient for virtually any operational need.

If a FX/CFD broker offsets all its trades but then shares in the profits those trades generate, it is still gaining from the client’s loss. That means they’ll do things like clear their trades, manage the custody of their assets,and provide them with access to leverage when trading in certain asset classes. For example, a single massive tier-1 client could be divided into ten or more smaller clients of PoPs, each utilising their tranche of the liquidity pool and paying smaller fees. For tier-1 PBs, the result is practically the same, as they receive a similar amount of commission charges from PoP intermediaries. In some cases, regular broker agencies can provide complementary services, including digital platforms, analytics tools and live data feeds.

So, the market has sorted itself once again, creating retail brokers for up-and-coming clients and delegating PB services to industry giants. Other types of prime brokers include investment banks and other large financial institutions. All prime brokers provide services to high-profile clients regardless of their company form. The rendered services can range from asset management, high-level consultation, borrowings, securities lending and even the complete takeover of the portfolio management duties. Essentially, a PoP broker acts as an intermediary between these smaller clients and the prime brokers. This allows retail Forex brokers, smaller hedge funds, and high-net-worth individuals to access the liquidity and trading services that are typically available only to clients of prime brokers.

However, the bottom line is that, not surprisingly, fixed-rate mortgages are the most popular amongst US borrowers. All the lender categories noted above rely on the prime rate to set the level for different loan types and credit ratings. Essentially, they depend on it to see whether the Prime Rate definition fits perfectly with the customer profile or warrants an adjustment up or down. So, they’re now caught in a compound interest trap until they rectify the shortfall, allowing a simple interest calculation to kick in again.

• PoPs, on their part, obtain access to tier-1 liquidity and distribute it on the market, allowing smaller players to benefit from extensive liquidity offerings in the process.
• The PoP structure came under scrutiny in January 2015, when the Swiss National Bank (SNB) removed its three-year-old peg of 1.20 Swiss francs per euro.
• Prime of Prime firms and prime brokerages have an excellent relationship that benefits the entire forex market.
• Just as a prime of prime enables a FX/CFD broker to access prime broker-like services, so too do these offshoots of prime of primes allow other brokers to access prime of prime-like services.
• They specialize in aggregating liquidity from various sources, including Prime brokers, and offer this aggregated liquidity to smaller brokers and traders, often adding a markup.
• Filippo Ucchino has developed a quasi-scientific approach to analyzing brokers, their services, offers, trading apps and platforms.

The reason prime of primes like to make claims about having a relationship with ‘Tier-1’ firms is really the result of the fact that a large segment of the FX/CFD industry used to only offer currency trading. The ‘Tier-1’ phrase is effectively a marketing term used to describe the leading investment banks that offer prime broker services. For example, Goldman Sachs would be considered a ‘Tier-1’ investment bank that provides prime broker services. Prime of primes provide pricing, liquidity, and other trading services to retail FX/CFD brokers, much as FX/CFD brokers provide pricing, liquidity and other trading services to retail clients.

They serve different tiers of companies across the forex and financial markets. So, to choose the best option, you must analyse your specific business capabilities first. Instead, PoPs have a dynamic approach to their client needs, increasing and decreasing their service scope according to customer needs. Their smaller size and specialist approach make PoPs much more flexible than gigantic prime brokerage firms, enabling them to keep their service quality high despite lower fees. This format allows PoP clients to acquire substantial amounts of liquidity even if they are not qualified to sign up with a prime brokerage institution. PoPs, on their part, obtain access to tier-1 liquidity and distribute it on the market, allowing smaller players to benefit from extensive liquidity offerings in the process.