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What is an Introducing Broker?

Michalaki, Pitsillidou Law Firm > English Articles  > What is an Introducing Broker?

What is an Introducing Broker?

Introducing Brokers and Forex

An Introducing Broker (IB) is fundamentally an agent which introduces new clients to a Forex brokerage. In return for sending custom to a brokerage, the Introducing Broker receives a fee, with regards to Forex this is usually a certain promotion of the Spread or Commission charged by the brokerage. Supposing you are charged the amount of $3 commission on a precise Forex Trade it might be feasible that the Introducing Brokerage who refereed you to the broker would acquire over half this sum. A considerable percentage of brokerages, run Introducing Broker programs as it is able to reduce the costs involved in acquiring new clients with marketing efforts being left to companies and people who are working on a commission only basis.

In certain countries, it is required by law that Introducing Brokerages be regulated entities. This is the case in the United States, in which Introducing Brokers are required to be registered with the NFA, in order to be able to solicit the enterprise of US residents.

Therefore, in Europe there is no requirement that Introducing Brokers be regulated, which principally allows any individual or company to act as an Introducing Broker by presenting new customers to a brokerage. Even though the potential Introducing Broker may have to undergo a vetting technique and will also be required to offer identification and documents, in order to verify they are who they say. Brokerages regularly check up on their IB’s to make sure they are promoting the brokerage in way which is consistent with the companies’ regulatory requirements.

 

Benefits of using an Introducing Broker

Introducing Brokers earn commission based on the volume traded by their clients, which means they want their traders to achieve success in ensuring that they maintain to earn commission. This means that many Introducing Brokers will provide free gifts to those who have opened trading accounts below them. These gifts frequently vary, however it is not uncommon for Introducing Brokers to offer traders premium Expert Advisors, books and other trading resources, all in an effort to keep traders trading with them.

Furthermore, many Introducing Brokerages provide rebates to their customers. Essentially, these Introducing Brokers share a percentage of a commission they make with the people who choose to sign up below them. For the most of the traders, the fact that they can receive rebates is one of the main reasons that they sign up under an Introducing Broker, as overtime these rebates can add up to a noteworthy amount.

 

Disadvantages of using an Introducing Broker

Introducing Brokers are often given a substantial amount of information concerning those who sign up underneath them, as this gives the opportunity for an Introducing Broker to build up a relationship with their customers. While this isn’t inherently complicated, there are several individuals, who would rather not have their data shared with a third party. This may be a small amount to pay, in return for rebates or the opportunity to adopt the right to access to premium resources without any cost.

 

Difference between an Introducing Broker and Forex Affiliate

A lot of people are slightly confused regarding the difference between a Forex Affiliate and an Introducing Broker. As formerly mentioned, Introducing Brokers are given important amounts of information concerning their referrals and are frequently expected to foster relationships with those customers. Therefore, an affiliate will receive only a few details regarding the activities of those who signed up under their affiliate link. This leaves the brokerage itself as the one responsible for fostering a relationship with the purchaser, with the affiliate simply attracting business. This often means it is much easier to become an affiliate than an Introducing Broker, as a brokerage has to do less to check the suitability of the person promoting the brokerage.

 

 

For more information and guidance please email Michalaki, Pitsillidou & Co LLC – Cyprus Lawyers, at info@impklawyers.com or visit our website at www.impklawyers.com.Tel. +357 25660092 – Fax +357 25 660097

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