Affiliates and introducing brokers are similar. Both provide customers with a way to gain access to specific services. While an affiliate can provide clients access to several types of good or services, an introducing broker is an agent or affiliate who introduces a customer to a broker service. In return for introducing a client to a broker, the introducing broker will generally receive a fee that is predetermined. Introducing brokers are usually paid a spread or portion of the commission that is charged to the client.
How is an Affiliate Paid?
An affiliate is using a CPA methodology. This is the cost per avulsion that a broker will pay if the client you referred deposits capital at their brokerage firm and transacts a certain number of trades. Brokers are looking for clients that are willing to trade and will not be for a referral that is just a registration. Additionally, brokers are likely to have a specific criterion to make sure that the trades are not fraudulent prior to paying out a CPA to introducing brokers.
Introducing brokers are also paid using a commission structure. In some cases, the introducing broker will receive 40% of the spread the broker charges for specific trades. This allows an introducing broker to participate in the trading benefits of a client. The more the client makes and trades the more the introducing broker will benefit.
Who Can Become an Introducing Broker?
The term introducing broker is used throughout the capital markets. Each brokerage firm has different criteria that they enforce to determine who can become an IB. For example, the SEC requires that you pass several tests before you can be an introducing broker that provide US stocks as a service. In the forex space, brokers will provide IB labels to affiliates that provide at least 5-clients.
How to Choose a Broker
Its important to choose a broker than is transparent. You want to make sure that you receive information about your client’s activity. Receiving user-friendly reports through a system that will keep you updated regarding clients’ actions and future payouts, will be the key to a good IB relationship. You want to find a broker that is reliable and has integrity. You want to forge a partnership with a broker you can trust.
The main difference between an introducing broker and an affiliate is the payout structure. Affiliates generally receive a cost per acquisition which allows them a one-time benefit from the introduction of a client. An introducing broker can also receive CPA but will benefit from an ongoing relationship that a client has with a forex broker. IB’s will be eligible to share in the commission structure and will receive benefits the more a client transacts. An IB has an incentive to help a client profit. The more a client profits the longer they are likely to trade, allowing an IB to rack up commissions.