FX Prime Brokerage and Give-Up Trades
FX prime brokerage lets a fund trade with many banks under a single credit relationship by having every trade "given up" to the prime broker, who nets the exposure and takes on the counterparty risk.
A hedge fund that wants competitive pricing needs to trade with many different banks, but setting up a separate credit and legal relationship with each one is slow and operationally heavy. FX prime brokerage solves this: the fund trades with any bank on the prime broker's approved list, but every trade is immediately "given up" — legally passed — to the prime broker, so the fund's actual counterparty on every trade is always the prime broker, never the executing bank directly.
The executing banks are comfortable with this because the prime broker, not the fund, stands behind the trade; the prime broker is comfortable because it charges a fee and monitors the fund's overall exposure across every bank it trades with, netting offsetting positions rather than tracking them bank by bank.
A give-up trade lets a fund access many banks' liquidity while maintaining just one credit relationship — the prime broker steps into every trade as the fund's counterparty, in exchange for a fee and continuous oversight of the fund's total exposure.
Worked example
A fund buys $50 million EURUSD from Bank A and sells $30 million EURUSD to Bank B, both under its prime brokerage agreement. Both trades are given up to the prime broker, which now shows a net $20 million long EURUSD exposure to the fund, and separately manages its own $50 million and $30 million positions against Bank A and Bank B. The fund never has direct credit exposure to either bank — only to its one prime broker — which is why it can trade with dozens of banks without dozens of credit lines.