What is an introducing broker?
An introducing broker (IB) is a type of broker that acts as an intermediary between its clients and a larger, more established broker-dealer. The IB does not have its own capital to trade with, but instead brings clients to the broker-dealer, who then executes the trades on behalf of the client. In return for introducing new clients, the IB receives a commission or fee from the broker-dealer. Introducing brokers are common in the futures and forex markets, and they may also offer additional services such as educational resources or market analysis to their clients.
What does an introducing broker do?
Introducing brokers, or IBs, are intermediaries that connect clients to larger, more established broker-dealers. They do not have their own trading capital but instead bring clients to the broker-dealer who executes trades on the client’s behalf. In exchange for introducing new clients, IBs receive a commission or fee. IBs usually have a specialized service and maintain a long-term relationship with their clients by providing various services such as educational resources, 1-to-1 training, and cashback sites. It is in their best interest for their clients to be profitable and continue trading for an extended period.
Introducing broker vs affiliates
Affiliates and IBs share a common activity – they introduce clients to a specific broker and get remunerated for this. The main differences between affiliates and IBs are the way they generate referrals, and how they get paid by the broker.
Introducing brokers:
Introducing brokers typically earn rebates, which are a portion of the commission or spread charged by the broker to the client. The advantage of this is that the IB starts earning money from the referral immediately, without having to wait for the client to meet certain conditions. Rebates are typically paid out daily, in contrast to cost-per-acquisition (CPA) payments, which are usually made monthly for the previous month’s activity.
Another advantage for IBs is that there are no limits on how much they can earn or when they can earn it. IBs typically have direct communication with their clients and provide specialized services, whereas affiliates may simply promote the broker on their website without providing any additional services. An example of this would be a comparison website that lists different brokers on its site.
If a client follows a link from the comparison site, opens a trading account, funds it, and trades on it, the comparison website may earn a commission without having any direct contact with the client or providing any additional services.
Affiliates:
Affiliates typically operate on a cost-per-acquisition (CPA) payment plan, where they receive a fixed fee for introducing a client as soon as the client meets certain criteria set by the broker. For instance, an affiliate may earn $600 CPA when the client they introduced deposits at least $500 and completes 2 standard lots within a 60-day period.
How to be an IB?
To become an introducing broker, one must first have a strategy in place to attract clients. This may include creating an online course or webinars, providing one-to-one training, having a website and social media presence. Next, it is important to choose a reputable and regulated broker, as most clients prefer to trade with a regulated broker. The introducing broker will then need to provide some documentation to prove their identity, such as a passport or driver’s license, and for companies, documents such as a certificate of incorporation and a bank statement in the company’s name. Once the IB has a deal in place with a broker, they can start promoting their services and growing their client base, while also ensuring that their clients’ best interests are always being considered. The more clients trade, the more the IB earns, making client satisfaction a top priority.
Who can become IB?
Many individuals or companies can become introducing brokers (IBs). However, there may be certain regulatory restrictions in certain countries, so it’s important to check if IBs are allowed to operate in your country without authorization. If there are no regulatory requirements, becoming an IB requires only the appropriate know-your-customer (KYC) documents, a partnership with a broker, and a solid strategy.
