Forex glossary
Prime brokerage
FX prime brokerage lets an eligible client execute agreed trades with counterparties using a prime broker's credit relationships. It consolidates credit, collateral and settlement handling under a contract. It covers accepted trades and limits, rather than guaranteeing every order without restriction or describing an ordinary retail account.
Illustrative example
How does it work in practice?
Suppose a fund has a 5 million USD prime-broker limit and two approved dealers. A trade exceeding the limit requires contractual acceptance; the prime-broker relationship itself does not guarantee the trade will be accepted.
A case to work through
Dealer and limit
A fictional agreement has a 2 million USD limit; a client proposes 2.5 million with an unlisted dealer.
- Check counterparty approval separately from size.
- The amount exceeds the limit by 0.5 million USD.
What follows? Confirm acceptance under the agreement before treating the trade as accepted.
Example boundary: This simplifies limits and describes no specific credit agreement.
A useful distinction
Prime brokerage / Liquidity providers
A liquidity provider quotes trades; a prime broker provides an agreed credit relationship.
Check your understanding
Check a proposed trade against its contractual scope.
Show the answer and explanation
Approved counterparty and acceptance rules
Size is not the only condition.
FX participants, access and execution
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Read the fuller explanation
Related terms
Sources and documentation
- FX trade execution: complex and highly fragmented – BIS
Describes dealer-customer segments, platforms and prime-brokerage credit relationships.
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The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.