Due to the emergence of online trading methods, the FX market has experienced growth. It can be challenging for new brokers to rival the success of well-established companies in the market.
Startups can enter into competition by either offering the same services or by lowering their prices. Prime-of-prime liquidity providers and prime brokerages assist new brokers in generating significant revenue in the FX market by linking them to established brokers.
Prime Brokers
Prime brokers, such as JP Morgan, HSCB, Citi Bank, and Morgan Stanley, are wealthy institutions and banks with operational capitals that rival the budgets of small countries.
They have access to significant fund pools and liquidity assets, controlling and distributing these supplies according to FX market conditions. FX prime brokers offer a wide range of top-notch finance services, including access to liquidity sources, capital management, risk assessment, fiscal consultancy, invoice settlements, and more.
PB is typically offered to high-portfolio clients and trading brokers, offering them extensive funding pools and even investing in these companies to provide cash flow or a capital source.
However, Forex PBs charge a premium fee in exchange for their competitive finance services, which are incomparable to those of retail brokers who focus on market accessibility and affordability. In return, they put FX brokers on par with whale traders and key players, competing with them to acquire the largest market share.
Prime-of-Prime Brokers
Prime-of-prime (PoP) liquidity suppliers emerged in response to the increasing gap between established FX businesses and newly created retail brokers. PoPs are more diverse and suitable for different foreign exchange brokers who want to offer financial trading services without paying premium rates.
They provide the services and functionalities that most investors and retail traders demand, such as offering suitable services at affordable prices, high scalability according to business needs and size, being more affordable than prime brokers, and consolidating liquidity and order books.
Conclusion
PoP brokerage and PBs are two common liquidity provision models for FX brokers, but their approaches differ. PoPs are more suitable for mid-sized platforms and retail brokers who offer a limited range of services.
On the other hand, prime brokerage is more suitable for significant FX brokers seeking advanced services like consultancy, financial planning, asset management, and risk assessment. Selecting the right liquidity type depends on your FX business type, budget, and objectives.
