In most financial markets there will be a broker involved to receive orders from retail and corporate customers. In the foreign exchange (FOREX) market, the broker acts as the intermediary between its customers and the inter-bank market where the currencies are actually traded. What is an introducing broker (IB) and where does the IB fit in the vast marketplace?
The Developing Market
Bear in mind that the opportunity for retail customers to trade in the Forex is still relatively new. Not only is it new, but the Forex continues to evolve regularly as the trading environment and the facilities which make the Forex better keep getting more efficient. The relative novelty of retail currency trading has also help to generate its own means of marketing and getting more investors to participate.
Enter the IB
One of the means of getting the word out to retail and other customers is through individuals or entities acting as introducing brokers or IBs, for short. As the name implies, the role of the IB is to introduce the customer to a regular retail broker who proceeds to set the investor up with an account for trading. Because this market is still largely unregulated, most IBs are not licensed and, frankly, do not have to be in order to perform their function and financially benefit from the same.
How Is an IB Paid?
The good ole capitalist way of providing a financial incentive for work performed also applies to the IB. In other words, the IB expects to, and usually does, get compensated for services provided in the way of bringing the customer to the table. This compensation comes from the retail broker and not the customer, at least not directly. The spread between the bid and the ask price of a currency pair is the compensation for the broker for facilitating the currency trade. The broker then shares with the IB the spread from each trading transaction with the customer based on the agreement with the IB. Some brokers may even increase the amount of the spread based on the IB arrangement, in which case the customer is actually paying more to trade. Therefore, it would be advisable for the investor to inquire if this is the case, if the customer was brought in by an IB.
Sandy Robinson, J.D., Copyright 2007
If you are ready to change your future by stepping into the exciting world of trading Forex, go to
http://www.winningtradersassociation.com
for more information. Author Sandy Robinson, J.D. is part of the Winning Traders Association, an educational
organization founded by John Beiler, President. The organization consists of a network of committed trainers
and motivated traders willing to provide support to those interested in trading foreign exchange. Many of the
members work from home.
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