Prime brokers are the primary individuals utilized by prime brokerage firms to coordinate and make sales and trades with hedge funds. The everyday person can use prime brokers as a way to invest money in the dynamic and exciting world of stocks, bonds, and other securities. According to a Bankrate.com survey, over half (52%) of Americans do not have any money invested in the stock market. That’s not just the purchase of regular stocks, but includes mutual funds, 401k accounts, and IRAs. Lack of investing knowledge was cited by 21% of people as the reason they don’t own stocks. Here are three of the ways prime brokerage services function to help you understand and potentially use their services in the future.
Bonds are probably the most prevalent things brokers buy by volume. In fact, the U.S. bond market alone is worth in excess of $34 trillion! They don’t always buy them, though. Sometimes brokers will borrow bonds, known as “securities lending.” Overall, it is a large, liquid, and at times volatile market in the United States. The corporate bond market alone is estimated to trade about $16 billion worth daily.
Short selling is essentially the opposite of buying a stock. When you buy a stock you’re buying a piece of the company, thus making a bet that they will succeed and continue to grow. When you decide to sell a stock short you’re making a bet that the price of the stock will fall. Short selling is seen by many as a way to combat market bubbles before they “pop.”
The prime broker is the middleman between hedge funds and institutional investors, or commercial banks. The investors/banks provide the capitol or assets and the hedge funds participate in security lending and margin financing. Obviously this is a drastic oversimplification, so if you’re interested in more specific details talk to your financial adviser or find some classes in securities finances! cgparka cgparka cgparka