Prime brokerage transactions: Difference between revisions
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*'''Synthetic long''': A “[[synthetic]]” economic equivalent of a physical long position created by entering a “long” [[equity derivative]] as a {{eqderivprov|Floating Amount Payer}}. | *'''Synthetic long''': A “[[synthetic]]” economic equivalent of a physical long position created by entering a “long” [[equity derivative]] as a {{eqderivprov|Floating Amount Payer}}. | ||
*'''Synthetic short''': A “[[synthetic]]” economic equivalent of a physical short position created by entering a “short” [[equity derivative]] as a {{eqderivprov|Equity Amount Payer}}. | *'''Synthetic short''': A “[[synthetic]]” economic equivalent of a physical short position created by entering a “short” [[equity derivative]] as a {{eqderivprov|Equity Amount Payer}}. | ||
The ideas to get your head around are four, and in this order: | |||
====[[Brokerage]]==== | |||
The business of getting a [[broker/dealer]], being a regulated person with excellent connections to the market and access to all the best juicy sources of liquidity, to buy or sell shares for you. This is exactly the same idea as when you sell buy or shares through Charles Schwab: all that differs is the scale and volume. You give an order, the broker executes it, hyou are the proud owner of — or no longer the proud owner of — shares in XYZ. | |||
===[[Margin loan]]=== | |||
===[[Short selling]] | |||
===Equity derivative (aka contract for difference)=== | |||
{{sa}} | {{sa}} | ||
*[[Prime brokerage charging]] | *[[Prime brokerage charging]] | ||
*[[Prime brokerage]] | *[[Prime brokerage]] | ||
Revision as of 18:11, 6 January 2021
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Prime Brokerage Anatomy™
   
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The classic prime brokerage transactions, illustrated in the panel:
- Physical long: A physical long position financed with a margin loan.
- Physical short: A physical short position created by selling a stock borrowed under a stock loan.
- Synthetic long: A “synthetic” economic equivalent of a physical long position created by entering a “long” equity derivative as a Floating Amount Payer.
- Synthetic short: A “synthetic” economic equivalent of a physical short position created by entering a “short” equity derivative as a Equity Amount Payer.
The ideas to get your head around are four, and in this order:
Brokerage
The business of getting a broker/dealer, being a regulated person with excellent connections to the market and access to all the best juicy sources of liquidity, to buy or sell shares for you. This is exactly the same idea as when you sell buy or shares through Charles Schwab: all that differs is the scale and volume. You give an order, the broker executes it, hyou are the proud owner of — or no longer the proud owner of — shares in XYZ.