Hello fellow traders, I am having difficulties understanding what is the difference between brokers and clearing firms? What would be the difference for large volume traders if they have to chose between a brokerage account and a clearing account? I would very much appreciate it if someone can clear things for me. Thanks in advance!
In the USA: -Both brokers and clearing firms are SEC registered Broker Dealers. -A clearing firm has the infrastructure in place to clear trades, finance stock loan, borrow securities, transfer etc. -Not all clearing firms do business with "customers." Not all clearing firms offer execution and might be clearing only. Some only offer clearing to brokers, then the brokers get the clients. -Every broker doing an execution business needs a clearing firm to custody they accounts You don't really have to be concerned if your broker uses a clearing firm or is one. The advantage of using a broker is choice. Clearing Broker only offer their services. An independent brokers can offer choice of clearing firms and platforms. You would think that cutting out the broker and going direct would offer better rates. It does not. Brokers get lower rates so they can mark up fees, but interact with the client, rather than the clearing firm. Clearing firms don't want to add the staff necessary to interact with every client in a quick manner. Many also don't want to staff their support with enough people to deal with trading support. Does that help?