Increase Liquidity through a Prime Broker

Discussion in 'Options' started by thomas3133, Jul 9, 2011.

  1. Hello,

    I would like to trade a large amount of spreads of a relatively illiquid long-term options and I encounter problems in getting my order filled. It should be noted that such options have open interest of tens of thousands contracts but the volume is pretty slight.

    I currently trade through a retail account in one of the online discount brokers and I thought that I may use the services of a prime broker just to increase the chances of my order getting filled (I understand that prime brokers can find a party that is willing to fill my orders even when I cannot get fills in the ordinary electronic option markets).

    However, I understand that there is a minimum equity requirement that a customer must deposit with a prime broker in order to open an account which is much higher than the minimum equity requirement for a retail trader due in part to the ceratin features and relieves that may be granted to a trader which operates through a prime broker (such as portfolio margin or other margin relieves, favorable shorting or lending features, etc.).

    However, I only need a prime broker's services to get my orders filled and not for any other relief; I can use my equity and margin requirements which I have in my current retail account and still implement the strategy successfully, only if I get fills on my orders. It should be noted that I would trade a large amount of contracts if I only get fills so that a prime broker may be interested to provide his services due to the large commissions.

    Do you think there are prime brokers who may provide such service to me even if I do not have equity of hundreds of thousands dollars? I would be happy to read your thoughts in this respect. Also, if you have any other suggestions for me please let me know. Thanks.
  2. cvds16


    I think you won't get any better executions ... your counterparty will most likely be a market maker, either they are willing to take it or they aren't, your broker has little to do with that.
  3. +1. To sum up, a pb will require a large account size, charge huge commissions (relative to IB/lightspeed/your own negotiated retail broker) and NOT be able to magically make an illiquid option liquid. i'd either trade more liquid options if the wide spreads are a dealbreaker or i'd stick w/ the above mentioned brokers.

    you can get a pb account w/ ib/tradestation/lightspeed and other retail brokers if you absolutely think you need one. if you're trading options you don't need a pb b/c anything you need you can get w/ a retail broker (port marg/low commish). pb's don't exist b/c of "low touch" clients. they butter their bread by chargining ridic financing rates and huge borrow fees for all but the largest clients.
  4. The reason I asked about prime brokers is because they say they can get my orders filled even when such orders are not filled through the electronic markets and the complex order book on the exchanges; in such circumstances, they say they can make other parties interested in filling these orders while I may not get fills from those parties if my orders just rest on the electronic exchange order book.

    I must admit that I have never used a prime broker so I don't know if they can really increase the fills on my orders. However, if they can't provide such premium service why would traders ever use the services of prime brokers instead of low-cost brokers such as the names you mentioned?

  5. You're not going to do any better than a firm like IB unless you need access to a floor broker in the SPX.
  6. Actually my trades may involve also SPX. Why can a floor broker improve my results regarding the SPX? Is it connected to the SPX being traded only on CBOE in which the trade is not fully electronic?

    Also, you mentioned that I'm not going to do any better than a firm like IB -- do you think there is a difference between IB and thinkorswim in this respect? Thanks
  7. Re the first point, SPX will eventually be moving to C2, the new fully electronic options exchange however this move has been continually pushed back. When this happens look for volume to rapidly move over dealing another blow to people standing in the pits like this is the 12th century and taking away one of the few reasons to MAYBE use a pb (access to pit brokers).

    Re the second point, I think atticus means that IB has the best execution which is well documented although he would have to chime in to say what he meant.
  8. rmorse

    rmorse Sponsor

    Where is it documented that IB has the BEST Execution? I'd like to see that? BTW: Who did the study and how was BEST defined? We are Introducing Brokers to IB and I can't make that claim.
  9. IB does have an options desk for large or complex orders.
  10. #10     Jul 12, 2011