Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Web Trader MT5
P
Primary market
The market in which newly issued securities are sold for the first time.
Prime Broker
A prime broker is the powerful bank that sits behind a hedge fund, providing the bundle of services that let it operate at scale. Prime brokerage wraps together financing, lending the fund money and securities to trade with leverage, the ability to borrow shares for short-selling, the clearing and settling of trades, and custody of assets, all under one roof.
Big investment banks compete fiercely for this lucrative business, since a fund’s prime broker earns fees across everything it does.
Example: A hedge fund wanting to run a large, leveraged long-short portfolio signs up with a prime broker, which lends it the extra buying power, sources the shares it needs to sell short, and handles the settlement of its trades. The relationship is central to how the fund functions, so much so that when a prime broker withdraws or reduces financing, as happened to some funds in 2008, the fund may be forced to unwind positions quickly.
Principal Model
Under a principal model, your broker is your counterparty: when you buy, it sells to you from its own book, and when you sell, it buys from you. This is the opposite of an agency model, where the broker simply passes your order to the wider market and takes a commission for the service.
As principal, the broker makes its money on the spread and takes on the position you traded against, which it may hedge or hold. The arrangement is common in foreign exchange and CFDs.
Example: A retail trader buys a currency pair from a broker running a principal model, and rather than routing that order to a bank, the broker itself takes the other side, becoming short the pair the trader is now long. The broker earns the spread and decides whether to offset the risk in the market or keep it, which is why a principal-model broker’s interests may not always be perfectly aligned with those of its clients.
Principal Trading Firm (PTF)
A principal trading firm, PTF, trades purely with its own money, not clients’. These firms, many of them high-speed market makers like Citadel Securities, Jane Street, or Virtu, have become enormous forces in modern markets, providing much of the liquidity that used to come from the big banks.
Because they trade their own capital for their own account, they typically bear the trading risks themselves and rely on their technology and their edge.
Example: When a retail investor buys a stock through an app, the order may be routed to a principal trading firm acting as market maker, which sells the shares from its own inventory or otherwise executes the trade as principal and may earn revenue from the spread. Repeated across billions of trades, that razor-thin margin can add up to a huge business, and it has made the biggest PTFs among the most important, if least visible, players in the entire financial system, quietly standing between buyers and sellers all day long.
Profit
Profit is the money you make when a trade or a business comes out ahead, the amount by which what you got exceeds what you put in. In trading it is the difference between your entry and exit prices, times your size, minus the costs, commissions, spreads, financing, that nibble away at the total.
Two flavours matter: realised profit, banked once you close a position, and unrealised profit, the paper gain on a trade still open, which can vanish before you actually collect it.
Example: A trader buys a stock at 100 and sells it at 110, booking a realised profit of 10 a share before costs. Had she held on with the stock at 110 instead of selling, that 10 would be unrealised profit, real on the screen but not yet in her pocket, and a drop back to 105 would erase half of it, a reminder that a gain is not truly yours until the position is closed.
Profit and loss (P&L)
A statement that presents the earnings, expenditures, and net income of an investment, providing an overview of its financial state.
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