Why Use Prime Brokers?

Discussion in 'Prop Firms' started by prudent, Feb 2, 2005.

  1. prudent


    This is the scenerio, starting a hedge fund with 1 mil. All trading done in house by two traders. No DVP accts and no outside executing brokers. Can someone please tell me why would one sign up with a prime broker, pay higher fees and higher transaction costs?

    Now once the fund grows to 20-30 mil it is obvious the benefits of having a prime (introduction to higher levels of funding through the primes contacts etc..) but a small fund is better off going with a solid broker that can give you .004 per share and .90 per option contract until u can get some serious money behind you. If I'm wrong I'm open to hearing why. Thanks

  2. (1) As an outside customer, you would have to be recovering some of those higher fees in the form of wining, dining, entertainment & inside information. (2) If your 1-million dollars of trading capital came from that broker, they may demand that you trade through them on their terms. Make the best of it until you get a better deal.

  3. you are WAY better off avoiding the hedge fund route all together with 1 million. perhaps with 10 million it's worth looking into, as a tiny startup-- with one million you are wasting your time.

  4. range


    I have not gone the hedge fund route -- at least so far -- but I do not see the need to use a prime broker if you have $1MM lined up and that is all you need to start. I too like the idea of starting small and growing organically. Prime brokers could have alot of value if you want to start a big fund, but I would imagine that they would not be hugely helpful unless you have a story that is easy to sell.

    Which solid broker will give you .004?
  5. prudent


    Well, hank I wouldn't call it a waste of time. A trading record of consistent .05% monthly returns makes this venture a very logical one. My question, which wasn't really addressed, is does anyone know the advantages of using a prime at this early stage.

    And by the way, Cyber will give you the .003 per share if you do enough volume.


  6. ok, if you say so. there is NO advantage for you to use a real prime broker at your level. most require 10mm minimum with promise of much more.

    i wish you the best !

  7. prudent



    Can you read? You are making my point. Please read my first post. I don't think a prime is needed right now, which is your point also. Unreal. I was trying to find someone who had a counter-argument for using one at this early, low AUM stage.

    I guess we agree.

  8. trade24


    w/ 1mm in capital no need for a prime or dvp - most likely you wont trade away - cant do enough size that anyone on a desk would even give you color- so a prime or dvp acct isnt necessary if you can do it cheaper in a stand alone acct - have my own fund - trading w/ some fo the big desks isnt what it used to be anyway - the onle thing they really proide is capiatl if you're a good enough customer - keep it simple - good luck
  9. prudent


    Thank you for the substantive reply...appreciate it.

  10. jerryz


    Would a prime broker even consider doing business with someone who only has $1 million? I am also weighing the benefits of a prime broker but don't want to look dumb by calling them with too small of an account.

    If you short a lot, one thing a prime broker can provide is a lower borrow fee.
    #10     Feb 2, 2005