How Prime Brokers Make Risk Management Easier

Bob Rutherford
Head of Operations

How Prime Brokers Make Risk Management Easier

Bob Rutherford, Vice President of Operations & Kristopher Johnson, Head of Risk Management

Those who don't learn from history are doomed to repeat it. While it may be cliché, it's the truth. Coming off a super bull market, we've been mired in a crypto winter that has turned many investors into risk-off mode for a while. With more people dipping their toes back into the market, the digital assets space is starting to transform.

Why use prime brokers for risk management

The crypto market is only getting more fast-paced, and those who don’t invest in risk management will be caught trying to play an impossible game of catch-up. Rather than spend the time and money, forward-thinking investors are turning to crypto-native prime brokers to drive their risk management and trade execution at scale.

Prime brokers have robust risk management systems that remove much of the heavy lifting. These systems were built to manage risk with the same rigorous compliance found in TradFi by automating the constant monitoring of transactions through a third party. They can help identify, monitor and mitigate risks associated with crypto trading and employ sophisticated risk control mechanisms to protect clients from excessive losses.

Benefits of using prime brokers for risk management

Digital assets are more volatile than other asset classes, meaning crypto-native prime brokers such as FalconX must have advanced stress testing capabilities. Prime brokers conduct a series of what-if scenarios to identify theoretical profits or losses for positions and strategies due to adverse market events.


Prime brokerage firms typically monitor the risk within client portfolios using "risk-based" methodologies that consider the worst-case loss of a portfolio based on liquidity, concentration, ownership, macroeconomic and investing strategies.

Here are seven ways prime brokers help make risk management easier: 

  1. Liquidity Management: Access to deep liquidity pools essential for executing large cryptocurrency trades is a major plus. Brokers can source liquidity from multiple exchanges and providers, which helps manage the risk of market impact and price volatility.
  2. Counterparty Risk Mitigation: As principals, dealers like FalconX eliminate the counterparty risk and operational complexities that exist in the digital asset space.  Clients of FalconX don't prefund an account or give any assets to FalconX. Rather, we settle T+1 eliminating the need to take counterparty risk. Reducing counterparty risk is particularly important in the fragmented digital assets landscape.
  3. Margin Trading and Leverage: Crypto leverage trading allows traders to increase their exposure to the market without putting up the total amount of capital required. Prime brokers often provide margin trading facilities, allowing clients to trade with leverage across multiple positions, asset classes and venues without posting collateral to each. This increases capital efficiency and reduces counterparty risks. FalconX utilizes robust risk management systems to monitor and automatically manage leveraged positions to prevent excessive losses.
  4. Portfolio Diversification: Granting access to various cryptocurrencies, exchanges and other financial products helps clients diversify and manage their crypto portfolios. By spreading risk across different assets and markets, brokers mitigate the potential adverse impact events have on a single coin, while providing cross-margining abilities to increase capital efficiency for clients.
  5. Reporting and Analytics: Equipped with comprehensive reporting and analytics tools, clients gain better insights into trading activity, risk exposures, performance metrics and compliance requirements. In other words, brokers help clients make data-driven decisions, simplify reporting, and adjust their strategies based on their positions and risk metrics.
  6. Custodial Services: Whether in TradFi markets or digital assets, institutional investors rely on prime brokers for secure custodial services. Robust security measures such as multi-party computation, offline storage and multi-signature wallets are essential to protect clients' digital assets.
  7. Regulatory Compliance: Efforts to regulate cryptocurrencies have recently become an international policy agenda. Brokers are subject to regulatory oversight and compliance requirements and manage the fractured regulatory environment at scale. For that reason, using them for crypto trading can help traders adhere to regulatory standards and navigate any legal complexities.

FalconX is unique in the prime brokerage world. We have a deep bench of machine learning engineers who have designed systems and processes to understand where we're quoting, how fast we're quoting and what the market is doing. These systems allow us to trade billions of dollars a day while reducing counterparty risk through our “just-in-time” inventory and collateral management tools. FalconX offers automatic execution across multiple spot, exchange-traded and OTC crypto derivative venues, along with staking services, cross-margining and reporting as a regulated counterparty.

FalconX 360 supports and simplifies risk management

At FalconX, risk management is at the forefront, giving way to FalconX 360, the first and only unified investment and risk management platform for institutional digital asset managers.

With FalconX 360, institutions have complete command and control to access opportunities and lower risk across the entire digital assets ecosystem, with cross-margining capabilities across their crypto investments. Our clients now have access to a unified portfolio view, position and post-transaction reporting, institutional staking and the ability to borrow against balances and positions – all with a built-in risk management engine.

FalconX 360 allows investors to:

  • Understand portfolio risk and track all positions and leverage in a single view.
  • Benefit from cross-portfolio margin netting across spot, derivatives, staked and borrowed assets on platform.
  • Reduce operational risk through access controls and user permissions managed right from the front end.
  • Access 24/7 dedicated support and market color from our global client coverage team.

Don’t be left behind

Prime brokers will play a critical role in the next chapter of digital asset trading. As the crypto market ramps up, investors that partner with prime brokers to prepare risk management infrastructure will be well-positioned to balance their portfolios and protect their positions as crypto winter thaws.

FalconX 360 can help you get there. With our built-in treasury management solution and cross-portfolio margin tools, you can optimize your market exposure through a single, simplified portal with unprecedented stability, visibility, security and risk controls.

If you’re ready to discover the best operating system for digital assets investment, let’s get started.

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This material is for informational purposes only and is only intended for sophisticated or institutional investors. This material is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations, or (iii) an official statement of FalconX or any of its affiliates. Any information contained in this material is not and should not be regarded as investment research, debt research, or derivatives research for the purposes of the rules of the CFTC or any other relevant regulatory body. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences of the transaction. This material does not constitute investment advice. To the extent permitted by law, FalconX does not accept any liability arising from the use of this communication. This material may contain information regarding structured products which involve over the counter derivatives. Pursuant to the Dodd-Frank Act, over the counter derivatives are only permitted to be traded by “eligible contract participants” (“ECP”s) as defined under Section 1a(18) of the CEA (7 U.S.C. § 1a(18)). Do not invest in a structured product unless you are an ECP as relevant and fully understand and are willing to assume the risks associated with the product. Solios, Inc. is registered as a federal money services business with FinCEN. FalconX Bravo, Inc. is provisionally registered with the U.S. Commodities Futures Trading Commission (CFTC) as a swap dealer. FalconX Limited is a registered Class 3 VFA service provider under the Virtual Financial Assets Act of 2018 with the Malta Financial Services Authority. FalconX Limited, FalconX Bravo, Inc., nor Solios, Inc. are not registered with the Securities & Exchange Commission or the Financial Industry Regulatory Authority. FalconX Foxtrot Pte Ltd and FalconX Golf Pte. Ltd. are not regulated by the Monetary Authority of Singapore.

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