An introducing broker is an agent who introduces beginner traders to the Forex market and in return, they receive a brokerage fee. This fee is usually a percentage of the spread or commission. Many forex markets around the world are regulated in that, not any individual can introduce new customers to brokerage and introducing brokers are required to prove identification and validity of their trading documents.
The National Introducing Brokers Association represents all the professionals in the industry who include commodity trading advisors, introducing brokers and Future commission merchants. There are two types of induction brokers; a guaranteed and an independent introducing broker. The difference between the two is their relation with Future commission merchant.
Attributes of an introducing broker
An introducing broker acts mainly as a customer representative and a salesperson for future investors and some of their common attributes are;
- They are not usually registered with the Commodity futures trading commission.
- No floor operations.
- No set minimum level of financial standards.
- No margin deposits used to assure of clients future options.
- They make use of a customer account
- Orders to the futures commission merchant which is responsible for the execution of the orders.
Benefits of using an introducing broker
- Introducing brokers mostly offer rebates to new customers who opt to trade through them. Rebates are a percentage of the commission that the brokers make which they share with the customers. This attracts customers as the rebates can add up to a substantial amount over time.
- Brokers in the forex market earn a commission that is based on the performance of their clients prompting them to offer gifts to people who sign up for trade through them. Such gifts include books, expert advice and various trading resources. They offer constant expert advice to new clients and offer trade-related customer service.
- An introducing broker is important to the stability of the future markets as they offer guidance to those who are new to the trading market.
Disadvantages of using an introducing broker
- There is the risk of the confidential information shared with introducing broker falling into unwanted hands.
- In return for the access to forex trading resources and rebates, clients might have to pay for it in one way or another.
Are a forex affiliate and an introducing brokering the same?
There is a huge difference between the introducing broker and a forex affiliate. While introducing brokers are given access to deep information about the client, a forex affiliate receives little information about the clients.
Introducing brokers cement the relationship between the institution and the client while a forex affiliate, on the other hand, handles all the business transactions.
How to choose the best introducing broker
When doing your research for an introducing broker to use in your trade at the forex market, you should consider the value that the introducing broker sets for their commissions, knowledge and support. The perfect way to determine the duration of your involvement with the introducing broker is to consider the frequency of your trading actions.
It is recommended that you do extensive research before settling on a particular introducing broker. Some elements that should be put under consideration include;
- How long the introducing broker has been in operation
- The regulatory framework that they work under.
- Their day trading margin policies that they apply.
- The type of trading platforms that they introducing broker offers.
- Reviews of other clients under the same introducing broker.
If you identify one and they give you good recommendations then you can negotiate for an amicable price.