An introducing broker (IB) is a broker that acquaints a client to another broker. The path to becoming an introducing broker will vary based on the industry and securities you are offering. Introducing brokers that are interested in acquainting clients to a forex broker should follow the steps to become an affiliate. If you want to be an introducing broker that benefits from US stock sales, you will need to take several tests and be licensed by the Securities and Exchange Commission.
Becoming an Introducing Forex Broker
The first step in becoming an introducing forex broker is to become an affiliate. Affiliates and introducing brokers are similar. While an affiliate can provide clients access to several types of good or services, such as a forex broker, an introducing broker is an agent who has successfully introduced several clients to a broker. In return for introducing a client to a broker, the introducing broker will generally receive a fee. Introducing brokers can be paid in several ways. This could be an upfront fee or a portion of the commission that is charged to the client.
Who Can Become an Introducing Broker?
The term introducing broker is very broad. Each brokerage firm has different criteria as to what they consider an introducing broker. They also have the right to determine who can become an IB. For example, the SEC requires that you pass several tests before you can be an introducing broker. In the forex space, brokers may label an affiliate an IB labels once they provide at least 5-clients.
How is an Introducing Broker Paid?
There are several methodologies that are used to pay an introducing broker. Some firms will pay them like an affiliate with a larger initial payout using a CPA methodology (cost per acquisition). Brokers will get paid a fee if a client transacts a trade. Introducing brokers can be paid using a commission structure. In some cases, the introducing broker will receive 40% of the spread the broker charges for specific trades. This allows an introducing broker to benefit if a client continues to transact with the broker. If the client is a day trader and makes dozens of trades per day, the IB will significantly benefit.
Choosing a Broker
The process can be difficult as many brokers are not transparent and do not provide upfront information on how an IB will be paid. You want to make sure that you receive consistent information about your client’s activity. You want to make sure that you receive daily reports that are automatically generated through a system that will keep you updated regarding clients’ actions and future payouts. You want to find a broker that is reliable and has integrity. The Activelyinvesting IB program have a great payout structure, they are a reputable broker that you can trust.
Summary
The difference between an introducing broker and an affiliate is the payout structure. You can generally become an IB when you have introduced at least 5-clients to a broker. Affiliates generally receive a cost per acquisition. IB’s will be eligible to share in the commission structure and will receive benefits the more a client transacts.
