I'm a futures guy, not a stocks guy so this is out of my wheelhouse. The last time I was a party to something close to a prime brokerage account was in the early '00's at a HF. You would have to be very high net worth to be an individual with a prime brokerage account. Prime brokerages generally serve Pension Funds, Insurance Companies, Sovereign Wealth Funds, a few ridiculous Family Funds, College Endowments - those kinds of very high asset Institutional Investors. They would also service your larger Hedge Funds and Private Equity Funds. They are bespoke omnibus accounts, and they will offer custom margin offsets which is amazing. For example, you could buy 500K share blocks of equities out of a dark pool and hedge them against ES and NQ futures, that type of thing. And they would calculate a margin offset for you. Prime accounts will have access to all sorts of OTC products and swaps and derivatives. You could buy a tanker of physical oil and sell it on the bilateral physical Singapore Swaps market. If you ever wanted to trade electric transmission rights or tanker ship leases - this is your account. Interest Rate Swaptions? Yep.
Apparently all deep discount or free brokers sell order flow. That's how they make money. They're not making money from fees or commissions so it has to come from somewhere. And apparently it's lucrative.
I am loving these people who are signing up for RH accounts, a record 3 million accounts opened in the 1st quarter, they setup free chat rooms, tell each other when to get in and out of positions, HFTs pickup on this, the bids/offers start getting it, I love shorting the penny junk knowing that on the other side you got these noobs that are being gamed by the HFTs, I like to get on board before the panic selling starts and cover into it, hopefully they all don't blow up their accounts anytime soon, and they bring in other suckers, telling them how easy it is, please tell me RH is giving people bonus for referring fresh suckers??
If you're happy, then fine. Ignorance is bliss. Here are the Company 606 reports for PFOF totals for 2020 Q1 and Q2. Equities and Options. TD Ameritrade: Equity Q1: $72,782,936 Equity Q2: $144,219,349 Options Q1: $129,597,189 Options Q2: $179,991,996 Total Q1: $202,380,125 Q2: $324,211,345 E*TRADE: Equity Q1: $29,822,204 Equity Q2: $50,210,044 Options Q1: $49,829,545 Options Q2: $60,117,332 Total Q1: $79,651,749 Q2: $110,327,376 Schwab: Equity Q1: $25,447,153 Equity Q2: $32,396,842 Options Q1: $28,517,592 Options Q2: $33,745,172 Total Q1: $53,964,745 Q2: $66,142,014 Robinhood: Equity Q1: $31,116,950 Equity Q2: $69,116,307 Options Q1: $59,802,125 Options Q2: $111,148,089 Total Q1: $90,919,076 Q2: $180,264,395
It seems there are subjective definitions of a Prime Broker and a Prime Brokerage relationship. These are mine. A Prime Broker is a clearing firm that offers clearing and custody of a Prime Brokerage relationship. A Prime Brokerage relationship in one where you custody and clear trading at your Prime Broker but also trade way at other execution brokers and clearing firms. Finra states "Prime brokerage and introduced accounts where trades may be executed away from the clearing firm must maintain $500,000 in equity." We offer this service through Wedbush Securities but require more than $500,000. Most brokers require more. We also offer execution-only services to accounts that Prime away from us. I would say the most typical reasons to trade away and Prime with us are for access to IPOs. The most typical reason to Prime away and execute through us is for access to our software, routing, service and low commission rates.
that was going to be my point. What does growth in prime brokerage have to do with discount brokers selling order flow. Your post made it sound like people were flocking to prime brokers for better execution than the payment for order flow execution at discount brokers.
meh, than that means nothing to me. I can't afford a real broker and I've been using retail brokers and getting front-runned ever since I started trading.
My understanding is that IB Pro customers still pay to trade and their orders will routed to the market where they will get the best execution, instead of being sold. IB Discount customers have their order flow sold to MM's.
In my opinion payment for order flow is okay. My hard commissions are lower and I want market makers to lump me in the stupid category.
Prime brokerage on Wall Street has been growing at 8 percent per year. Them and us are two different species of people entirely.