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Introducing Brokers – an evolving business model


BY PAUL TOWNE, PRESIDENT OF BACK BAY FX (BBFX.COM) AN NFA REGISTERED IB/CTA SINCE 2007.


Like many aspects of the foreign exchange business, the role of introducing brokers (IB) is rising in prominence, but it is an industry that has been experiencing a shake-up. While the basic idea has been around for some time, there remains confusion as to the value of using an IB and its role in forex trading – ultimately to be beneficial along the supply chain.


retail customers to brokers or futures commission merchants (FCMs) for a commission.


T


he most straightforward explanation of an IB is a company or salesperson that refers


Typically there is no cost to the retail client when using an IB as they are compensated by brokers. Te brokers benefit from this outsourced sales force by gaining clients and IBs are able to generate income from their leads.


But this is a simplified version of the model and such a basic model has largely become obsolete over the past decade due to industry changes and the evolution of the retail FX client. Competition for clients has led the IB to expand the services they offer to include rebates, trading signals and an enhanced customer service.


Paul Towne


Clients have in turn come to expect more from their IBs than just a referral to a broker. As the FX industry handles the sweeping regulatory changes which are a result of the global financial meltdowns, introducing brokers have been forced to adjust their business models. Tose IBs who could not successfully react to the new market conditions have closed down, while others have moved to countries with more FX-friendly regulation.


30 | INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013


Brokerage Operations


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