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Why Should You Become an Introducing Broker?
Written by: PaxForex analytics dept - Tuesday, 13 March 2018 0 comments
A person or institution who has all the functions of a broker except to accept money or any type of investment is called Introducing Broker. The Introducing Broker (IB) usually refers its clients to a dealer and in return receives a compensation such as commissions. IBs tend to provide a value-added service to their clients such as managed account services, trading advice, education, etc. IBs are sometimes referred to as the “field sales force” of the futures industry because they are often the only representative of the industry with whom the customer ever personally interacts.
Introducing Brokers offer valuable services for customers who open their accounts directly with the IB office. They provide: Help for new investors who may not fully understand the risks of the markets, training that can prevent a customer from making a costly mistake during the order entry process, the experience that is necessary to evaluate market moves, and spot opportunities for trading, access to research the public generally does not have, understanding of regulatory changes that may impact a customer’s trading plan, the expertise to help develop a strategy which meets a customer’s needs, including using options, forex, swaps and managed accounts.
Many IBs are one-person operations, while others are larger, multi-location businesses. IBs are better able to service their clients as they are local, and their primary goal is customer service. Outsourcing the prospecting and servicing of clients to the IBs creates economies of scale for FCMs (futures commission merchant) and the futures industry. Most IBs do not have the financial resources to execute trades for their
clients directly because that requires a direct relationship with futures exchanges and the large overhead of maintaining accounts, trades, and reporting, as well as developing and maintaining trading platforms.
An introducing broker is not occupied with the task of carrying out orders. Instead, they can concentrate all their time on the needs of their clients; advising and training them as they make their trades. An IB will take the time with their clients to introduce them to other traders and valuable contacts. Introducing brokers make rebates on their clients’ trades. IBs meet with their clients and discuss various aspects of forex as well as determining orders. They delegate the task of carrying out the order to an FCM. Introducing brokers typically come from financial services backgrounds as such jobs provide them with many likely candidates.
Introducing broker programs are growing in popularity at an astounding rate. Every day more and more people are realizing that they can make a substantial income merely by networking and understanding the workings of forex. At the same time, customers are increasingly opting to trade via an introducing broker as opposed to large brokerages. Most introducing brokers have some interest in forex but they may not have the resources or experience necessary to succeed as traders. For this reason, they concentrate on their strengths, such as valuable contacts in the financial sector, good networking skills, and the time and inclination to recruit new traders.