This post was originally published on May 6th, 2024, and updated on March 3rd, 2025.
A give-up trade is a trading arrangement in which a single broker (executing broker) performs a trade. On the other hand, another broker (the clearing broker) clears and settles the trade on behalf of the client. This arrangement enables institutional investors to access better market conditions without being tied to a single broker's execution services.
Key Takeaways:
In finance, a give-up refers to executing a trade through one broker while settling it through another. This allows traders to maintain relationships with specialized execution firms while consolidating their clearing operations under a preferred broker. Traders frequently use give-ups in the derivatives and foreign exchange (forex) markets.
Outside of trading, give-up can refer to transferring rights, responsibilities, or obligations from one party to another. In contractual agreements, a give-up may involve a company relinquishing its stake or operational control in a joint venture or project. In business, a give-up differs from trading because the term specifically refers to executed trades that transfer for clearing.
Brokers facilitate give-up trades to improve institutional investors' trading efficiency. This practice allows clients to execute trades with specialized execution brokers while maintaining a consolidated clearing relationship with their preferred broker. Give-up trading also enables access to better pricing and liquidity across multiple markets.
A give-up trade involves an executing broker transferring a trade to a clearing broker on behalf of a client. In contrast, a give-in trade occurs when a clearing broker accepts and processes a trade submitted by another broker. Essentially, a give-up trade is the process of execution and transfer. In contrast, a give-in trade is the acceptance and clearing of that trade.
A give-up trade consists of the following parties:
The executing broker is in charge of doing the trade according to the client's directions. This broker immediately places the trade at the most competitive obtainable price. After completing the trade, the executing broker documents the transaction data and then transmits it to the clearing broker.
The clearing broker handles the settlement and documentation of the trade. They conduct the trade following the client's account and legal requirements. They are also responsible for managing any associated margin demands and risks in trading.
Most executing and clearing brokers also operate as broker-dealers, meaning they can facilitate trades and provide market-making services. In give-up trading, broker-dealers ensure seamless execution and clearing by managing regulatory compliance, liquidity, and trade reporting. Their dual role allows them to act as intermediaries while maintaining efficient market operations.
A prime broker usually handles large institutional clients, coordinating trade execution, financing, and settlement services. In a give-up trade, a prime broker may facilitate access to multiple executing brokers while consolidating clearing and custody under a single entity. This setup enhances efficiency for hedge funds and high-frequency traders.
The client, usually the investor or the firm, initiates the trade. They use give-up trading to leverage the expertise of specialized brokers for execution while maintaining a consistent clearing arrangement with a preferred clearing broker. This structure provides them with access to multiple brokers and better market opportunities.
Suppose a hedge fund wants to buy 500 futures contracts but prefers Broker A for execution and Broker B for clearing. The hedge fund places the order with Broker A, who executes the trade. After execution, Broker A submits the trade to Broker B for clearing under a give-up agreement. The hedge fund benefits from Broker A's superior market access while maintaining a clearing relationship with Broker B.
A give-up fee is a payment the executing broker imposes to manage the trade before passing it to the clearing broker. The executing broker receives compensation for their services regarding market access, infrastructure, and execution. The amount depends on the asset type, market, and the broker agreement.
For example, in high-frequency trading (HFT), executing brokers may charge a per-trade give-up fee, which can impact the cost structure of large institutional traders. Understanding these fees is crucial for optimizing trading costs.
While give-up trading benefits institutional investors, smaller traders may find the fees and complexity less advantageous.
A give-up agreement is a written contract that specifies the duties of the executing and clearing brokers. It contains the following:
This contract reduces the risk of settlement and guarantees seamless broker coordination. Many institutional investors collaborate with brokers who use give-up agreements to simplify their trading processes.
A give-up agreement needs to specify who the client, clearing broker, and executing broker are. This section should clearly outline each party's function and obligations to prevent future disputes.
The agreement should include the terms of trade execution, including the size of the deal, the instruments used, and the execution date. These terms ensure that everyone is aware of the process before beginning trades.
One of the most critical aspects of the agreement is the structure of the give-up fee. The agreement should detail the trade execution fees and the executing broker's compensation. It should also outline all expenses associated with trade clearing and market access.
The agreement should specify processes for addressing broker issues to avoid problems. These may include provisions for arbitration or mediation to resolve disagreements over trade execution and settlement.
Give-up agreements must comply with exchange rules and financial regulations. This section should specify the governing regulatory authorities and each party's obligations regarding compliance.
You can either seek help from a professional when writing a give-up agreement or create your own based on templates found online.
DISCLAIMER: Acquire.Fi is the listing and advertising platform for Web3 businesses and does not certify or verify the information provided to the platform by the business owners. Acquire.FI LTD (Acquire.Fi) does not hold itself out as providing any legal, financial or other advice. Acquire.Fi also does not make any recommendation or endorsement as to any investment, advisor or other service or product or to any material submitted by third parties to Acquire.Fi. Acquire.Fi is not a licensed crypto asset service provider for the purpose of EU regulation. The following list is compiled from Acquire Fi partners. Acquire fi is not a licensed crypto asset service provider for the purpose of EU regulation.
Have queries? Reach out to us on the email below!
team@acquire.fi
.webp)