Not Putting Everything Through One Broker

A single prime broker is convenient — one relationship, one margin agreement, one set of reports — but it also concentrates every kind of risk that broker carries onto your desk. If that broker fails, as Lehman Brothers did in 2008, clients whose assets weren't properly segregated found their positions frozen or impaired for months during the resulting insolvency proceedings, regardless of how well their own strategies had performed.

Concentration risk here isn't just "the broker goes bankrupt." It also includes: the broker unilaterally widening margin requirements or cutting a credit line during a stressed market exactly when you can least afford it, a technology outage at that one broker taking down your entire execution capability with no fallback, and the broker's own risk limits on your account tightening because of trouble in its other business lines that has nothing to do with your strategy. Because all of these risks are correlated with the broker specifically, spreading assets and execution across two or more brokers doesn't just add operational overhead — it removes a single point of failure that a strategy's own risk model never captures, since position-level risk metrics assume clean, continuous access to your broker and exchange.

Practical mitigation is straightforward: maintain relationships and margin lines with at least two brokers, keep enough excess collateral that a sudden margin call from one doesn't force a fire sale, and periodically test that failover to the backup broker actually works rather than assuming it does.