The 3 Benefits of Using an Introducing Broker

Up until recently, Forex dealers would take just about anyone to be an Intro. Now, dealers are a lot more selective; some dealers will not even look at firms that are not registered as an IB with CFTC or the NFA.

An introducing broker is a customer catering arm for the dealing firm. The IB drives business to the clearing firm and provides additional customer support for both the client and the dealer. Introducing brokers are usually compensated as a portion of the spread on each trade their client makes. The dealing firm, in most cases, has a close relationship with the IB and provides them with multiple perks that are then passed on to the IB's clients – assuming you work with a reputable IB.

Many traders are skeptical of using and IB because it seems as though you are going through a middle man, when in fact you aren't. Introducing brokers should never hold client funds nor interfere with the trading processes in any way (altering platforms or spreads). Using and IB can actually increase your potential for success in the Forex markets for the following reasons:

1. IB Leverage

Let's say you have an account at a dealing firm that's funded with $10,000 USD. Even at a major clearing firm, mistakes can happen, and if your orders are filled with outrageous slippage than you may need to call the clearing firm. Anyone who trades Forex knows that customer support at the ground level operations can be very inconsistent, and often times, if you have less than $20,000 USD in your account then you will go to the bottom of the priority list.

When you are using a large IB that refers clients to a clearing firm, chances are that the dollar amount in funds under that IB is over $500,000. So now, instead of a 10K client, you are now looked at as a 500K client. This means that should you run into a problem with the clearing firm, you now have the clout and support of your IB to back your claims and resolute the problem.

2. Value Added Services

Many IB's will offer other services free of charge to their clients, because after all, they are getting paid per client that they bring to the clearing firm.

Some of these services can include advanced charting software, or a free eSignal, which can dramatically improve your trading if you take the time to learn how to apply it. Services like the ones offered by many IBs for free usually cost a monthly subscription fee or upfront charge if you try to obtain it on your own.

These services can be of great value to a trader, but it's also important for a new trader to be cautious of any "managed account" product, or high frequency trade strategy. These products usually advise traders to make a lot of trades, and thus increasing the IB's profits, as they are getting paid on each trade made.

3. Volume Based Trade Rebates

Since the IB is compensated each time their client makes a round turn trade, some IBs, especially those with a large enough client base, will offer their clients a rebate on every trade they make.

Since forex has a high trade frequency per trader by nature, even a nominal rebate per trade can easily add up at the end of the month. If you trade a larger volume of standard lots, you can usually negotiate a higher rebate for yourself.

Many traders use this trade rebate as an instrument to preserve their capital, and others look at it as a way to tighten the spread. Regardless of what angle you look at from, it's free money that you receive on every trade, whether it's a win, lose, or draw.

Introducing brokers are always on top of the industry, and if they aren't then they won't succeed. Traders should learn how to utilize their IB in a way to give them an advantage in the market. IBs usually have the latest information on clearing firms, platforms, and even strategies, so don't hesitate to inquire about anything to your introducing broker.

Alexander Nekritin is a professional trader with over 8 years of experience. His specialties include risk management and system development. Alexander is the CEO of NCMFX, Inc., which is a forex introducing broker and an educational company that helps suit client's needs in forex trading. He offers a special report to his clients that assists in finding an appropriate clearing firm. Alexander has a degree with a concentration in Investment Banking and derivative instruments from Babson College in Massachusetts. Contact Alexander with further questions at alexn@traderschoicefx.com.