What is a give-up trade?
So what if the one that executes your trade is another broker in place of yours? There is such thing in securities and commodities trading, and we call it “Give up.” Brokers keep all their successful and failed transactions on record books. As the name “give up” suggests, the procedure involves an executing broker gives up all the transaction credits on the record books. There are two primary reasons that we can name why this has to happen. First, the said broker may be unable to place a trade for the client because of other workplace obligations. Sometimes, this may also occur because the initial broker is working under an interdealer or prime broker.
Today, we may consider “give up” a “good to know” information because it is no longer that common, unlike before. But since trading is now easy and accessible thanks to technology, brokers do not need to worry too much about this issue. Earlier, we only have floor trading. It means that if a broker is busy, he might not make it on the floor for his other clients. Hence, he will find another broker that can place the trade for him instead. We can think of it as using a proxy. Performing a trade for another person is a part of a pre-arranged give-up agreement. These agreements will most likely come with give-up trade procedures and compensation. A pre-arranged agreement is needed because if not, the payment is not clear. We are all aware that give-up trades are not standard practice.
But what is give in?
Let us say the broker accepts the give-up trade from the initial broker. We call this acceptance the “give in.” Furthermore, give in may also refer to the time after the give up trade.
Let us name all the entities involved in the give-up trade.
Who are the people involved in a give-up trade? Let us enumerate and meet them below:
- The executing broker
- The client’s broker
- The broker on the opposite side of the trade
A usual trade only involves two people: the selling and buying broker. In the case of give-up trades, they have three. The additional person is the one who executes the trade on behalf of the client’s original broker. Sometimes, both the buying and selling broker may have other obligations on the same day. Hence, they will not be able to make it on the trading floor. Both of them can ask other people to work for them. In this case, we have give-up trades on both sides.
Ending with compensation matters
How is the compensation? It is the executing broker’s discretion if he will accept a standard trade spread or not. But most of the time, non-floor brokers are the ones who pay the executing brokers. These no floor brokers may either be on retainer or coming with a per-trade commission. The executing broker’s payment may or may not be included in the commission the initial broker charges his client.