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What is an Introducing Brokers and IB Commissions?11 min read

What is an Introducing Brokers and IB Commissions?11 min read

Reading Time: 5 minutes

Introducing brokers are intermediaries who connect traders with brokers and earn commissions on these services. One of the most common roles in the forex markets is that of introducing brokers. We will examine the business model of these financial intermediaries, also called IB for short. 

Before we get into how much income an introducer broker earns and what financial transactions they make, we first need to understand what it is in simple terms.

Introducing Brokers Definition

One of the well-known roles in the financial ecosystem is Introducing Broker. The job description of an Introducing Broker can be simply stated as a financial broker who brings together personal traders and brokers. Introducing Brokers are called IBs for short. An IB is responsible for informing clients in accordance with the market conditions and different projects and to this extent, connecting them with primary brokers. 

During these transactions, they earn commissions at certain rates. In addition, their income may increase according to the investment size of the clients they connect with primary brokers. IB is an advantageous position as an income model in financial ecosystems. 

Introducing brokers

What It Takes To Become An Introducing Broker?

There is no mandatory requirement to become an Introducing Broker. However, some equipment is necessary to become a more successful IB. First of all, it would be advantageous to have in-depth knowledge of financial markets rather than superficial knowledge. In addition, having well-developed human relations and networks means more client potential. 

Being reliable will also contribute to being a reference for the referred primary brokers. In some cases, an Introducing Broker license may be required. However, many projects do not require the Introducing Broker to have an IB license.

How Does An Introducing Broker Work?

Introducing Brokers’ main purpose is to be the link between potential traders or clients and brokerage houses. Therefore, they must be in good communication with both traders and brokers in order to connect the client with the primary broker. They should have a good understanding of current trading platforms, a good grasp of brokerage dynamics, technical knowledge and equipment. 

Their income model is the commissions they receive from the number of traders they bring together with primary brokers. In addition, as the amount of capital and earnings of these traders in the projects they manage with primary brokers increases, the income of IBs increases at the same rate. For this reason, it will be profitable for an Introducing Broker to be compatible with long-term plans and projects rather than short-term.

How Much Do Introducing Brokers Make?

Being an Introducing Broker is one of the most popular positions in terms of income model in the financial universe. Introducing Brokers, who earn their income through commissions, can earn very high amounts in some projects. Although they earn sometimes less and sometimes more depending on the capital and investment amounts of the potential clients they bring together with primary brokers, the average Introducing Broker has an income of up to 10,000 dollars in an average network. 

However, for Introducing Brokers who are not familiar with the dynamics of the financial ecosystem, are inexperienced, and have narrower networks, these earnings rates may decrease. Introducing Brokers who can provide long-term answers to clients’ financial questions will increase their earnings.

How Do Introducing Brokers Make Money?

It is simply known that the income of Introducing Brokers is commissions. However, they earn commissions not only based on the number of clients that are introduced to the introducing brokers, but also based on the investment that these clients will make. Therefore, it is important that they connect potential traders with the right brokers and offer realistic solutions. Usually a certain percentage is agreed upon. 

The Introducing Broker’s commission increases according to the trader’s capital and the trading ratio with the primary broker. Some professional Introducing Brokers are known to charge extra for additional support, consultancy or training. Especially nowadays, the number of such Introducing Brokers is quite high.

Here are the income methods of Introducing Brokers:

  • Spread or Commission Rebate: IBs may receive a set percentage commission on the number of clients they refer to brokers.
  • Revenue Sharing: IBs earn a percentage of the net revenue generated by the clients they refer. It is calculated by subtracting any discounts or bonuses given to clients from the total commissions or spreads charged by the broker.
  • Consulting: In some cases, IBs can also earn income by consulting on projects, as they have the expertise and capability to do so.
  • Hybrid Model: Several brokers offer a combination of revenue sharing with spread or commission rebates. This enables IBs to earn from both trading volumes and the net revenue generated by the clients they refer. 
Introducing brokers

What is an example of Introducing Brokers?

People from different professions can work as Introducing Brokers both in the forex market and in other markets. For example, financial consultants, a popular profession today, are a kind of Introducing Broker. This is because they seek answers to potential traders’ questions and connect them with primary brokers. It is known that many traders meet primary brokers by reference. As such, the broker recommended by a well-equipped financial consultant who has received financial literacy training will take precedence over others. 

Many economists cooperate with brokerage firms for reference. Today, there are many users on social media who are interested in this type of business model. Nevertheless, it is recommended to work with reliable and referenced brokers.

Safe Introducing Broker (IB) Registration

Secure Introducing Broker (IB) registration requires fulfilling regulatory obligations and getting the needed licenses or records to carry out activities safely as an IB. This process varies depending on the jurisdiction and applicable regulations. 

IBs may be required to demonstrate a commitment to financial and operational standards, undergo background checks and keep accurate records. By obtaining secure documentation, IBs ensure that they are operating within legal restrictions and safeguarding the integrity of the financial markets.

Introducing Brokers License

In relation to the Introducing Broker License, it refers to a special authorization issued by regulatory authorities that allows individuals or entities to act as IBs in a specific legal entity in a particular jurisdiction. To get this license, applicants need to meet the necessities set by the regulatory authority. 

This usually involves filing an application, providing relevant financial and personal information, meeting capital requirements, and complying with regulatory directives. Holding an Introducing Broker License demonstrates the IB’s commitment to conduct business within legal and regulatory frameworks and ensures transparency and accountability in its dealings.

The Guardian Bank finds the way to make the most profitable investments for its users with its introducing brokers service.