Tighter Institutional Spreads: As a neutral liquidity source, Prime Brokers have an incentive to facilitate as much trading activity as possible from their customers as possible. They are compensated by a prime brokerage fee, which is usually charged on a per-million basis each month. Because they typically work only with institutions, they do not have the huge overhead of employees and fixed costs that retail brokerages must bear in order to service a large number of clients. As a result, they are able to offer institutional spreads to their customers - as much as 2-3 pips tighter than retail accounts - and earn a respectable profit because of their lower cost-basis.

True Market Depth: Access to multiple liquidity providers is one of the biggest advantages of trading via a Prime Broker. This will allow you to place larger orders and trade more efficiently during periods of low liquidity because there are multiple liquidity providers effectively mutualizing the risk of these transactions - each of whom have a large pool of internal transactions to match your trades against.

Better Execution: Again, having access to multiple liquidity providers can only improve execution rates, especially during more volatile markets or fundamental news announcements, when the risk for any single trading counterparty would substantially increase. Retail forex brokerages that do not have sufficient access to liquidity during those times may choose to significantly widen their spreads or even requote and/or reject orders from their customers that are on the right side of the market during those times. This is because if the retail brokerage were to execute his customer's order at the requested price, without being able to immediately offset that risk in the interbank market at a better price, it would mean a loss for the broker. Prime Brokerages typically have liquidity relationships that can scale with the growing volumes of a successful trader and the trader would enjoy superior execution at all times of the day as a result.

Lower Transaction Costs: Lower spreads are only part of the equation here. As we have covered in a previous blog post, it is important to consider the unexpected cost of trading, particularly if your access to forex liquidity is currently limited to one retail forex brokerage. The cost savings from receiving superior order execution at the best prices available can be as must as 50% of overall transactions cost - which means that Professional Forex Traders can dramatically improve their returns simply by choosing the right liquidity source.