Prime Brokerage

You might take your mutt to the vet once or twice a year, make sure they're up-to-date on their shots, and occasionally wash them off in the backyard with a garden hose. Meanwhile, a rich socialite, with the pure-bred Chow Chow, might take their pooch to weekly treatments at Lorenzo's Animal Spa and Health Clinic, where Mr. Puddles not only gets medical treatment as needed, but also luxuriates in a regular steam baths, massage appointments, acupressure, and aromatherapy treatments.

The difference between how your pet gets serviced and what the socialite provides for hers...is similar to the difference between an average broker and a prime broker. You might call your broker occasionally to trade 100 shares of GE. Meanwhile, a prime broker works for hedge funds, which use it for a variety of complicated, interconnected financial services.

The prime broker provides its high-end clients with basic products, like execution and custody services. But she also provides securities lending (letting the funds borrow stocks and bonds, often for shorting purposes) and margin (loaning them cash to conduct trades). You might be able to get some of those services from your broker as well, though the scale isn't really comparable (rinsing off with a hose vs. steam bath). The primary broker provides loans at the high dollar amounts necessary for major hedge funds.

Meanwhile, prime brokers also act as intermediaries between the funds and other big financial actors. They become one-stop shops for the large funds to conduct their investment transactions.