Prime of Prime, also known as PoP, is a service offered by a small range of
market participants that allows Retail Brokers, Funds and various other Financial Services
companies access to liquidity pools provided by banks, non-bank market and ECNs. Access to
liquidity is one of the most important components for brokerage companies that enter
financial markets. Well-constructed liquidity pools mean a company has a better chance to
offer stable and consistent pricing, while low-quality liquidity leads to overvalued
spreads, gaps and price slippage. Prime of Prime liquidity providers offer brokers the best
industry conditions. They are classified as Tier 2 Liquidity providers, while Tier 1
providers generally describes the Large banks which are the main market makers and price
distributors In essence, PoP liquidity providers work together with Tier 1 banks allowing
their customers to trade with them. But why is this important? Tier 1 banks tend to have
strict protocols in who they can directly face in terms of clients. If a retail broker does
not meet these requirements, they may not be able to trade directly with the Tier 1 bank.
That is where PoP liquidity providers come in as they meet the standards of Tier 1 banks,
and have the ability to offer the products and pricing to a client base who demand
bank-level pricing. Retail brokers using Prime of Prime liquidity providers will benefit
from the POPS’S close relationship with the Prime bank and the true access to the market
that this structure offers Clients use PoP services to:
- Gain access to more liquidity.
- Gain access to products that standard prime brokerage accounts don’t offer, like
non-deliverable forwards (NDF). - Gain access to up-to-date technology that will guarantee a stable and secure trading
environment.
As banks are raising their criteria when it comes to
accepting new clients, PoP services are gaining more popularity.