Prime Brokerage is a term most companies employ to describe their Stock Brokerage activities for Hedge Fund customers. It is an important source of profit to Stock Brokerage companies as hedge funds are usually the most active traders of stocks, more so than institutional investors and much more so than mutual funds.

One of the main components of a prime brokerage operation is securities lending, that is either lending secured by stocks or bonds or the lending of stocks or bonds to customers. The lending secured by stocks or bonds is used primarily to buy even more stocks or bonds, a technique called "leveraging". When a customer borrows money against their stocks or bonds, the lender (which takes possesion of the stocks or bonds) is often free to lend those stocks or bonds to other customers. Customers will borrow stocks or bonds to sell them, with the hope that when they have to return them to the lender, they can repurchase them for a price lower than what they sold them for. This is called short selling. While this activity occurs with all kinds of brokerages, it is especially important and profitable with prime brokerage, since hedge fund traders are known to primarily use shorting and leveraging techniques.

Since hedge fund traders make complex, and often large trades, a major component of Prime Brokerage services are proprietary technology, trading, and information platforms offered to customers.

Prime Brokerage is an increasingly important source of profit for Invesmtment Banks, as large institutional investors (especially mutual funds) have been very aggressive at demanding lower prices for their trading activities. Many large mutual fund companies even demand that their brokers put their own money in on trades that they do. This increases the risk profile for trades.