A similar role is conducted by prime brokers, where they do the clearing for trades that they accept from executing brokers on behalf of their clients. Prime Brokers can conduct business in OTC markets including FX market.
Prime brokers act in a flexible environment as they operate based on many customized bilateral agreements with various financial institutions which want to settle trades through prime brokers. Usually prime brokerage services are provided by large investment banks or other financial institutions. These services include but not limited to trade execution, trade clearing, trade consolidation, post-trade risk management, trade reporting, client service, strategic advice, cash management and capital introduction.
FX-EDGE Prime Broker
After Swiss Franc crash in January 2015 many well-established prime brokers have withdrawn from retail FX Market, which created an opportunity for new entrants. These new market participants took over a significant market share from prime brokers by offering a Prime of Prime (PoP) services to underserved medium and small brokers. Once a new broker wants to settle trades in Forex MTF or ECN Market it needs to have a traditional Prime Broker or PoP which will clear its transactions with other market participants. For this service, Prime Broker or PoP collects some volume based fees which are quite low compared to other market fees.
FX-EDGE offers these services as one of the the PoP broker in our FX ECN Market. Members in our FX ECN Market can also settle trades with other institutions if they have necessary bilateral agreements. It is extremely convenient and cost efficient to settle trades via a Prime Broker as brokers need to have only one trading account which nets all its positions with different members. Additionally, prime brokers usually offer credit limits which can be used instantly in case of insufficient margins. All institutional participants of OTC Markets are required to clear their trades through prime brokers and are required to maintain a sufficient collateral to avoid triggering of margin calls or stop out procedures.