Understanding Introducing Brokers (IB): Roles, Registration & Responsibilities

What is Introducing Broker (IB)?

An Introducing Broker (IB) is a financial intermediary that connects clients with brokerage firms or clearing firms without executing trades or holding funds. They focus on client acquisition, support, and relationship management while relying on their partners for trade execution and clearing.

IBs operate across markets such as securities, futures, forex, and crypto, providing clients access to diverse products by leveraging partnerships with full-service brokers and firms. This model allows IBs to specialize in client services without managing backoffice operations.

Key Characteristics

Introducing Brokers have distinct roles that set them apart in financial markets:

• Client acquisition and referrals: They attract and refer traders to brokerage firms, often using localized or niche expertise.
• Personalized support and education: IBs assist with account setup, platform navigation, and offer trading insights without handling funds.
• Relationship management: Acting as the primary contact, they provide ongoing customer service and risk guidance.
• No trade execution or fund custody: Unlike full-service brokers, IBs do not hold client assets or manage trade execution directly.
• Regulatory compliance: They must register with authorities such as the CFTC or SEC depending on the market, ensuring legal operations.

How It Works

Introducing Brokers form agreements with clearing firms or futures commission merchants to facilitate client access to various financial markets. They focus on client-facing activities like onboarding and education, while their partners handle trade execution and clearing.

Compensation for IBs typically comes from commissions based on the trading volume of referred clients. This setup allows IBs to remain agile and cost-efficient, concentrating on relationship-building instead of infrastructure or backoffice functions.

Examples and Use Cases

Introducing Brokers play important roles across different financial sectors by bridging clients and brokers:

• Forex trading: An IB might help a trader select a platform such as those featured in our best crypto trading platforms guide, offering strategy tips without handling the account directly.
• Equities: IBs can refer clients to brokerage firms that provide access to stocks like Delta or other publicly traded companies.
• Futures and commodities: IBs solicit orders but forward them to futures commission merchants for execution and clearing.
• Online brokers: IBs often collaborate with firms listed in our best online brokers guide to provide clients with comprehensive trading options.

Important Considerations

When working with an Introducing Broker, ensure they are properly registered with the relevant regulatory bodies to avoid compliance risks. Understanding the distinction between IBs and full-service brokers helps clarify responsibilities and where your funds are held.

Since IBs do not handle trade execution or custody, you should verify the robustness of their clearing partners. Additionally, IBs can be valuable for traders seeking personalized support and education without paying for full brokerage services, especially when exploring commission-free options highlighted in our best commission-free brokers guide.