Prime of Prime Brokerage – extending market access for Retail FX providers

Nicholas Pratt examines the prime of prime brokerage (PoP) model and why it has been an increasing feature of the retail FX market as a consequence of numerous factors, including a more educated (and consequently more suspicious) client base.

According to Jonathan Brewer, head of e-FX Business Development at Sucden Financial, the rise of the PoP broker is the result of the pressure applied from more educated retail clients that now expect a better standard of service from their FX brokers. “Under the market-making model, firms would sometimes act more like a casino than a broker. They would take the other side of their clients’ orders and make money from their losses,” he says, so the temptation to skew prices in their favour was too much to ignore for some retail brokers under this model. However, thanks to an increasing number of internet forums populated by retail FX traders discussing their experiences – such as the Forex Peace Army – the nefarious practices of some retail brokers and the potential conflicts within the market-making model have been much publicised within the retail trading community.  Consequently, says Brewer, brokers are choosing to eschew the market-making model in favour of the agency...continued

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