In Finance, what is a Trade Away?

Malcolm Tatum

A trade away is a strategy that makes it possible to execute a trade through a broker or dealer other than the broker that is normally used to manage trade executions. While a different party executes the trade, the transaction is settled with the investor’s current financial custodian. The ability to make use of the trade away model has become increasingly common in many nations, and goes a long way toward making sure the investor is able to receive the most efficient service from investing professionals. At the same time, the investor can still maintain a single master account for his or her investment activity.

Businessman with a briefcase
Businessman with a briefcase

The basic process for creating a trade away situation involves identifying the broker or dealer that the investor wishes to work with, based on the type of security involved in the transaction. Once such a broker is identified, the investor arranges to move or trade in an individual-sub account that is relevant to the security involved. That broker or dealer handles all the details of the transaction, reports the completed activity back to the investor, then forwards the settlement for the order back to the custodian used by the investor. Any fees that are due are settled out of the investor’s account, thus compensating all parties for their involvement in the successful completion of the transaction.

There are several reasons why a trade away may be a wise approach. One may have to do with expediency in executing a trade order. The broker or dealer selected may be in a position to manage this process with greater speed than the custodian could manage using his or her usual procedures. Assuming that the transaction has the potential to earn a high rate of return, going with the faster solution increases the chances of earning that higher return.

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Some investors will make use of a trade away approach as a means of working with brokers and dealers who are based in specific international locations. This can sometimes provide the investor with the opportunity to benefit from perceptions regarding the potential of a given investment that would be hard to manage otherwise. By adding a local contact to the investment strategy, the client can make a more informed decision, and thus increase the chances of making wise trading choices. Over time, using this model can save a great deal of money in terms of limiting losses, while also making it possible to discover and invest in securities that might have been overlooked in other circumstances.

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