What is an introducing broker? Definition, roles and examples

What is an introducing broker? The definition

An IB sits between the client and the firm that carries the account. The IB owns the relationship and the work of finding clients, while the other firm owns execution, clearing and custody. Because the IB holds no customer assets it can run on lighter infrastructure, but it still owes duties to the clients it brings in and to the broker that pays it.

The phrase means slightly different things in different markets, so it helps to separate the formal US meaning from the everyday forex and CFD one. Context decides. The introducing brokers guide covers the wider picture, including how IBs compare with affiliates and white labels.

What is an introducing broker-dealer in the US?

In US securities, an introducing broker-dealer deals with customers. It does not hold their cash or securities. It registers with the SEC and joins FINRA. It does not clear its own trades. Instead, it sends orders and accounts to a clearing or carrying broker-dealer, which settles trades, keeps custody and maintains the books and records for those accounts.

A clearing agreement sets out the arrangement between the two firms, under FINRA Rule 4311. It needs FINRA approval to take effect. In a fully disclosed arrangement, the clearing firm knows each customer and carries the account in the customer's name. In an omnibus arrangement, however, the introducing firm's customers sit inside a single account at the clearing firm.

Either way, the introducing firm keeps its own regulatory duties. These range from supervising its representatives to suitability and best-interest obligations whenever it recommends investments to customers.

Introducing broker vs carrying broker

The quickest test is simple. Who holds the money? A firm that takes custody of customer funds and securities and carries the accounts on its books is the carrying or clearing broker. A firm that handles the customer relationship but routes the business elsewhere for clearing and custody is the introducing broker.

How do introducing brokers work in US futures?

A futures IB takes orders, and another firm holds the client's money. The Commodity Exchange Act defines an IB as a person who solicits or accepts orders for futures and certain other derivatives. But it does not accept money or property to margin those trades. The client's funds go to a futures commission merchant (FCM), which carries the account and holds the margin, and the IB still keeps the client relationship. US futures IBs generally must register with the CFTC and become members of the NFA.

There are two broad types. A guaranteed IB has a guarantee agreement with a single FCM, and it is required to introduce every one of its accounts to that FCM. An independent IB has more freedom, because it can work with several FCMs. In return, it must meet its own minimum adjusted net capital and financial reporting requirements.

IBs that introduce retail off-exchange forex business face extra CFTC and NFA forex requirements. For example, one principal of a forex IB must be a forex associated person. The NFA publishes the current rules on its introducing broker registration page.

What does IB mean in forex and CFDs?

In forex and CFDs, an IB is mostly a commercial partner. It refers traders to a broker and earns from their trading, usually through a per-lot rebate, a spread markup or a revenue share. Who are these IBs? Many forex IBs are trading educators, signal providers, community owners or local business introducers.

A forex IB normally signs a partnership agreement with the broker, receives tracking links or a partner code, and then uses a portal to see client registrations, volume and earnings. Forex IB commission explained shows how those earnings are calculated, and the forex IB program guide shows what a well-built program looks like.

Still, a commercial partner can be regulated. Depending on where the IB and its clients are, introducing clients may itself be a regulated activity. How to become an introducing broker summarises the UK and EU positions.

Introducing broker roles compared

The clearest difference between the roles is who holds client money and who clears the trades:

What an introducing broker is not

An IB does not hold deposits. Nor does it manage money under a mandate or run its own brand on another firm's platform. The boundaries with nearby roles look like this:

• Custody: client deposits go to the broker, which carries the account. The IB has no custody role.
• Money management: trading a client's account under a mandate is a different activity, and it is usually regulated separately.
• White labelling: a white label runs its own brand on another firm's technology. An IB promotes the broker's own brand.
• Affiliate marketing: affiliates usually earn from the referral and step away. IBs keep serving the client.

For clients, the practical point is that the broker pays the IB, and that payment can influence which broker or account type the IB ends up recommending to them. A good IB says this plainly. It explains how the payment works, too.

In one line, what is an introducing broker? A referrer that never holds client money.

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