What is Prime of Prime (PoP)?
In the world of online trading and brokerage services, where the entry barriers are low and big-money players dominate, it can be challenging to compete against those who have been in the game for years and accumulated tremendous capital.
FX brokers and trading startups find it difficult to solidify their market position and deliver eye-catching offerings. This is where Prime of Prime service comes into play: connecting retail brokers with tier-1 liquidity providers.
The financial services space keeps expanding, and PoP firms make it feasible to onboard new brokerage firms and equip them with means to compete successfully. Let’s review how Prime of Prime works and who actually needs it.
Key Takeaways
- Prime of Prime firms intermediate between small trading platforms and tier-1 financial institutions.
- PoP providers offer competitive pricing and liquidity aggregation to retail brokers, allowing them to operate and compete more effectively.
- PoP services are more affordable for platforms that cannot comply with the capital requirements of investment banks and financial institutions that offer liquidity and trading assets.
What is Prime of Prime?
Prime of Prime (PoP) is a service that allows retail brokers to access tier-1 liquidity pools and providers. PoP firms act as intermediaries between small trading firms and large financial institutions, offering trading infrastructure and credit facilities that growing businesses and startups cannot directly obtain due to high capital or credit requirements.
PoP firms aggregate liquidity from multiple sources, offering competitive pricing, optimised trading conditions, extended leverage and risk management services, enabling smaller players to operate efficiently in global markets.
As such, they bridge the gap between top-tier liquidity providers (LPs) and non-institutional entities, facilitating market participation for a broader range of clients.
How Prime of Prime Liquidity Works?
If you are launching a brokerage firm, getting compelling rates and products from market-leading financial institutions can be challenging. PoPs are tier-2 institutions that meet the requirements and have an account with tier-1 LPs.
Then, PoP firms extend this connection to retail brokers, such as FX trading platforms, CFD brokers, or crypto exchanges, allowing them to acquire deep liquidity and access a broad range of financial instruments.
Then, they offer trading services at favourable rates and prices to their clients, including online traders. This chain enables Forex brokers to facilitate trading on smaller lots, lower budgets and higher leverage. However, the spread can be relatively wider than that of tier-1 firms.
Who Uses PoP Services?
PoP firms enable smaller and newly launched businesses to compete effectively in global financial markets. As such, they leverage their access to:
Retail Brokers: Gain access to deep liquidity pools and competitive spreads, improving trade execution for their clients.
Hedge Funds: Leverage PoP services for cost-effective liquidity, credit access, and seamless execution of trading strategies.
Proprietary Trading Firms: Use PoP providers for fast execution and reliable infrastructure to support high-frequency or algorithmic trading.
Asset Managers: Rely on PoP firms for efficient trade execution and risk management across diverse asset classes.
Family Offices: Benefit from access to institutional-grade liquidity and credit for their investment strategies to suit their cost-efficient plans.
Market Insights
Prime of Prime (PoP) services emerged in the early 2000s, following the Internet revolution and as an evolution of traditional prime brokerage models.
This sphere grew massively due to the increasing demand for institutional-grade liquidity among smaller brokers and firms that could not meet the high capital requirements of top-tier institutions offering trading capabilities.
The market gap increased after the 2008 financial crisis when the Basel III framework was adopted, imposing stricter capital and requirements on T-1 liquidity sources and reducing the number of their clients.
The rising FinTech practices, financial innovations, and the entrance of cryptocurrencies have further solidified Prime of Prime firms as an integral part of the financial services industry.
While the PoP market size remains vague, the prime brokerage sector is booming, generating $20 billion in annual revenue in 2023.
Today, the Prime of Prime liquidity industry expands to multiple asset classes, including cryptocurrencies, non-deliverable forward, derivatives contracts, and more, enabling new brokers to compete effectively and boosting the overall market.
Prime of Prime vs Prime Brokerage
While PoP services empower retail Forex brokers to access liquidity and products from top financial institutions, prime brokerage companies serve broader needs with sophisticated offerings.
Prime brokerage focuses on large institutional clients and provides comprehensive trading, clearing, and financing services, while PoP bridges the gap for firms unable to access prime brokerage.
PoP Features
Prime of Prime providers intermediate between tier-1 banks and smaller brokers, offering access to liquidity, credit, and trading instruments without requiring direct relationships with prime brokers. As such, they enable smaller players to compete with institutional-grade tools.
- Aggregates tier-1 liquidity across various markets for better pricing.
- Offers credit lines to brokers unable to secure direct access.
- Access to deep liquidity pools for large-volume trade execution.
- Provides multi-asset liquidity across major international markets.
- Tailored solutions to fit the needs of brokers, traders, and funds.
PB Services
Prime brokerage caters to large institutional clients like hedge funds and asset management firms, providing comprehensive trading, clearing, and other financing services. As such, they enable corporations to execute sophisticated strategies across global markets.
- Facilitates access to multi-asset trading across global markets.
- Ensures efficient clearing, settling and executing of trades.
- Provides support for short-selling strategies and borrowing.
- Offers margin and credit for large-scale trading operations.
- Delivers detailed insights into portfolios, trades, and market risks.
Regulatory Environment
PoP firms and activities are governed by financial authorities such as the FCA (UK), CFTC (US), ASIC (Australia), and ESMA (EU), ensuring transparency, capital legality, and risk management.
Firms must comply with strict licensing requirements, including proving financial stability, segregating client funds, and adhering to Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols.
Some jurisdictions impose restrictions to leverage limits, trade reporting, and marketing practices to provide fair competition and dynamics.
Brokers using PoP services must ensure compliance with their local regulatory guidelines. Additional restrictions may apply in the Forex and CFD markets due to their complexity and risks, with limitations often placed on leverage and negative balance protection.
Best PoP Liquidity Providers
Prime of Prime providers play a crucial role in ensuring competitive pricing, deep liquidity pools, and robust technology across all market participants.
However, if you want to connect your brokerage firm to an intermediate, you will find plenty of providers. Let’s review the top 5 PoP firms that you can find.
B2BROKER
B2BROKER is a leading Prime of Prime liquidity provider offering access to Forex, cryptocurrency, CFD liquidity, and other 1,000+ assets from 10 classes.
It aggregates pricing and instruments from tier-1 banks and non-bank providers, ensuring deep pools and competitive spreads for brokers looking for institutional-grade access.
B2BROKER also provides advanced trading platforms, FIX API connectivity, and tailored solutions for brokers, hedge funds, and proprietary trading firms to start and succeed in the financial market.
B2PRIME
B2PRIME delivers institutional-grade liquidity for Forex, cryptocurrencies, commodities, and CFDs.
It offers reliable access to 200+ financial instruments combined with tier-1 pricing, API integration, and multi-asset liquidity pools to retail brokers and Forex trading platforms.
B2PRIME’s robust risk management tools and competitive spreads make it a preferred choice for brokers and institutional clients.
CMC Markets
CMC Markets is a globally renowned PoP liquidity provider, offering a wide range of financial instruments, including Forex and CFDs, to retail traders and small-size brokerage firms.
Its advanced trading platforms and institutional-grade APIs ensure seamless trade execution. With a strong reputation for reliability and global reach, CMC Markets serves brokers, hedge funds, and institutional traders effectively.
Finalto
Finalto is a reliable PoP provider offering customised solutions across Forex, commodities, indices, and cryptocurrencies.
Its advanced technology integrates seamlessly, ensuring fast execution and competitive pricing. Finalto serves brokers and institutional clients, delivering deep liquidity, risk management tools, and global market access.
Saxo Group
While primarily known as a multi-asset trading platform, Saxo Group also offers institutional services, including PoP solutions. It provides access to deep liquidity pools across Forex, CFDs, and other asset classes sourced from tier-1 banks and non-bank liquidity providers.
Additionally, Saxo Group offers advanced infrastructure, robust risk management tools, and APIs for seamless integration, making it a strong choice for brokers and institutional clients looking for reliable PoP services.
Conclusion
Prime of Prime services connects retail client brokerages with institutional-grade offerings, like deep market liquidity, competitive pricing and a secure trading environment.
Since small trading platforms cannot comply with T-1 liquidity providers’ capital commitments and regulatory requirements, PoPs act as intermediaries, serving as T-2 entities between institutional liquidity sources and client-focused platforms.
