The best place to start understanding what a prime broker is, is to begin with a type of broker you may be more familiar with. That would be an executing broker. An executing broker has a primary function of executing a trade, i.e. actually completing a buy or sell order for a client. This is the core function of all brokers, and for executing brokers, it's quite narrow. I.e. just completing the buy or sell order. While a prime broker can execute trades as well, their list of functions goes well beyond that of an executing broker, including clearing, settlement and custody. This means the prime broker clears trades by ensuring that they are matched and confirmed with counterparties. This is followed by the settlement stage where the prime broker handles the actual exchange of securities and payments between parties and completes this within the agreed timeframes. Finally, is the custody stage where the prime broker will hold record, keep for, and handle the corporation actions on all of the client's securities and report all of this back to them. Next, securities lending, which refers primarily to the function where the prime broker lends securities to a borrower. This is most often done to help a client with short selling a security. A second type of lending function provided by prime brokers is margin financing and secured credit facilities. It is effectively cash lending. The prime broker lends cash to a borrower client. This increases the counterparty risk the prime broker has to their borrower clients. The cash lent is matched to the client's securities held at the prime broker, which act as collateral to the cash borrowed. This margin financing function is primarily used when a borrower is looking to leverage their portfolio, i.e. to enhance their profits by buying more securities than they could do without any debt. These final two features, borrowing securities for short selling, and borrowing cash to lever up a position are not services that all investors within the financial marketplace are able to engage in. These are services which are mainly the preserve of hedge funds, which results in most clients of prime brokers being hedge funds. Since the prime broker may be holding assets from one hedge fund client, this can act as an inventory for lending activities for other hedge fund clients that wish to borrow them or open up short positions. Also, since hedge funds can be quite small, organizations with limited operations functions, the clearing settlements and custody functions all being centralized in one place with the prime broker can also be highly valuable to hedge funds.