WHAT IS THE DIFFERENCE BETWEEN A CLEARING BROKER AND PRIME BROKER?
In today's digital world, your trade order can be executed within a fraction of seconds but are you aware of the complex processes that occurs in the background of the trade? Well, you should be! You must know the involvement of the primary brokerage because a single broker can offer both functions or else there would be an involvement of two separate institutions.
However, in this blog, 500 per crore will help you to learn the difference between a clearing broker and prime broker by listing out their unique purpose and roles. 500 per crore is one of India's best trading platform that offers expert strategies to their valuable investors in performing the trade. Click here to know more!
WHAT IS A CLEARING BROKER?
A clearing broker acts as a liaison between the investor and clearing corporation. The key responsibility of a clearing broker is to make sure that the securities market runs smoothly and efficiently. The clearing brokers only have the sole duty to clear the transactions while other brokers do not have the authority to process them.
WHAT IS A PRIME BROKER?
A prime broker can be considered as a financial institution or a brokerage firm that places the trade for your investment. Prime brokerage refers to a bundle of services that financial institutions would offer to hedge funds. The services that are included in a prime brokerage bundle are cash management, securities lending and more.
A prime brokerage service would allow large institutions to outsource many of their investment activities and shift focus on to investment strategies.
ROLE OF A CLEARING & PRIME BROKER:
The role of a clearing broker is to ensure that the trade is settled appropriately and the transaction is successful. Clearing brokers are also responsible for handling and maintaining the documents related to clearing and execution of a transaction. Clearing brokers maintain the custody of account owner's securities and assets.
In general, the prime brokers would also take the responsibility for clearing the trade. A prime broker will help you arrange loans that can be used for leveraged trading. Prime brokers would also assist you in choosing the best stocks in the market by keeping you updated on the current market performance whereas a clearing broker will only perform the clearance of your transactions.
Prime brokers report your trading activity to the tax authority and send you the tax statements. Hence, choosing a prime broker can minimize your burden of clearing and executing the transactions through a clearing broker.
CHOOSE THE BEST FOR YOUR TRADE:
Choose the best broker as per your trading requirement but choosing a prime broker would be a wise option as you don't have to seek the help from two investment firms. While investing in the stock market, seeking expert guidance is necessary as they will help you to choose the best stocks and that is possible only through a prime broker. Hence make your decisions wisely!
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