An Introducing broker (IB) is a simplest form of partnership between an individual (or a business company) and a Primary broker. The role of the Introducing broker is to solicit clients for the Primary Broker. By doing so an IB earns commission.
– NFA Glossary:
“Introducing Broker (IB) A firm or individual that solicits and accepts futures orders from customers but does not accept money, securities or property from the customer. An IB must be registered with the Commodity Futures Trading Commission and must carry all of its accounts through a futures commission merchant on a fully disclosed basis.”
The process of referring clients to the Primary Broker can be done in a variety of ways, but the key component of a successful IB
business is to have the means, contacts and influence on the trading audience. Who can become a successful IB:
– investment companies, brokerage firms with a base of clients
– successful individual traders, money managers, investment advisers
– owners of financial websites, trading rooms, signal services, discussion boards, forums etc with good visitor traffic
– any other individuals or companies that want to start own Forex business and are willing to put in good work and efforts to achieve goals.
The process of applying for an IB is simple and requires filling out an IB application with the Primary broker and receiving a unique Introducing broker ID, reference links and promotional materials to start soliciting clients.
When a client registers an account with the Primary Broker via a referral link which contains an ID of the Introducing Broker, or when the client purposefully mentions an IB name when opening an account, in both cases the IB receives a commission.
Two common types of commission structures include a choice of:
– a flat fee for every referred client. This fee is can vary from $50 to $400 at times.
– spread sharing , where an IB constantly earns a small portion of the spread as long as his referred client keeps trading with the Primary Broker.
A White Label is a step up comparing to the IB. A White Label program will suit qualified and experience individuals (or companies) who want to become Forex brokers and create own brands in the Forex industry.
– NFA Manual / Rules
“White labeling refers to the practice of leasing the right to place the lessee’s name on and market another firm’s trading platform as its own and then passing the trades through to the lessor. In the typical while labeling arrangement, the lessee’s customers do not have a contractual relationship with, and in fact may be unaware of, the firm that owns and operates the platform. For regulatory purposes, the lessee is the counterparty to the customer’s trades and the corresponding transactions with the lessor are separate transactions between the lessee and the lessor to hedge the lessee’s customer obligations”.
The benefits of White Label brokerage programs include:
– fast start of the online business with extensive continuous support from the Primary broker
– avoiding the costs of setting up and running a full dealing business model, which requires licensing
– getting first-hand experience in the business, preparing to run an own independent brokerage
– working with own clients, instead of referring them, and being able to control own business to a larger degree
Running a White Label brokerage is pretty much the same as running a regular brokerage business.
You’ll keep a website about your brokerage services, a fully functional trading platform, you set own dealing spreads/commission and work with your clients: open accounts, accept deposits/withdrawals, monitor reports etc (Full White Label), or leave account management functions, including deposit/withdrawals to the Prime Broker (Limited White Label).
The Primary broker is always ready to supply a White Label with everything needed for starting the business, even make a new website if needed.
In addition, the trading platform will be branded with your company name and logo, protecting your privacy with the Primary broker, so that traders may actually never know who is the real owner of the platform.
What a White Label cannot control is:
– currency symbols available for trading
– the opening and closing of the market trading hours
– everything regarding the security of the system, which is controlled by the Primary broker.
The Primary broker will run an extensive back-office support, will handle all end-of-day reports and other trading related and administrative activities.
A White Label earns income from each client’s trade. The higher the trading volume of White Label clients, the higher the income revenues . The revenue & compensation models for the White Labels are more flexible and have a variety of options to choose from, which will be specified in the White Label partnership contract.
NFA Compliance rule 2-43Market execution vs Instant execution
