What Differentiates an Introducing Broker From an Affiliate?

When you get into Forex trading, there are two terms you will hear very soon – introducing broker and affiliate. While there are many similarities in the way in which an introducing broker and the affiliate functions, there are many differentiating factors between the two. Visit forex, metals, shares, indices trading broker | multibank group

An affiliate works towards offering clients access to a variety of goods and services. An introducing broker, on the other hand, is an agent whose primary job is to connect a customer or a client with a broker service. For doing this job, an introducing broker is entitled to get a fee that is fixed or decided in advance.

While both the introducing brokers and affiliates are associated with a broker firm as its partners, they perform different functions. Here, we share an example to help you understand the difference between the two.

A forex affiliate could create an advertisement for a Forex company and put it up easily. Based on a Cost Per Action or CPA, one could earn some money on every referred trader. A revenue share model could also be worked out.

Affiliates perform the simple task of referring their clients and do not really have any major responsibilities or obligations apart from that. For an affiliate, it is not a big task to get recruiting and other processes run in an automated manner. These processes, however, prove to be quite difficult for IBs as they do not have any experience in the same.

Once an affiliate refers the client, an IB has to provide certain services to the latter. Affiliates have minimal involvement in the services offered by a broker firm. For IBs, offering such services is very important as these help them strengthen their relationship with their clients.

Introducing Broker

When you speak to five different people about introducing brokers and ask them to define the term, they might define it in five different ways. Different people look at the profile of an introducing broker differently. However, when you are dealing with an introducing broker, you need to be clear about what they can offer you.

An introducing broker or IB bridges a connection between new clients and a broker firm. Based on the broker firm and the way it functions, an introducing broker could be required to work around financial market stocks, futures, stocks and other financial commodities.

Many people often refer to the introducing broker as the middleman but that wouldn’t be an accurate description of their profile. Their relationship with a clearing firm is more of a partner. While they don’t carry out the trades, they summon the trading floor at the broker firm and get the trade executed.

To put it in simpler terms, an introducing broker is a firm or an individual that carries out several activities that one associates with a broker but does not have the authority or the requisite permission to accept securities or money from the client.

How Does An Introducing Broker Make Money?

The primary source of income for an introducing broker is the commission they charge from their clients. The process of an IB earning money is very similar to how brokers do it. You might wonder why clients chose to trade through an IB and not with the firm. There are some very specific reasons behind that.

An IB can provide clients with additional support and services. Apart from providing your client with the requisite training, you are expected to interact with your client regularly. Most clients have a broker whom they trust and develop a strong bond with over a period of time. As compared to a commission merchant, the value and the number of services offered by an IB are much higher.

·         Get Good Clients

As an IB, one needs to remember that you will not be making any money if you don’t have clients. You must work towards getting the kind of clients on board who can help you generate a respectable commission. While looking for clients, different IBs have different approaches.

While some IBs try to get multiple clients and make moderate profits on each of them, there are many who focus on a select few traders that can lead them towards earning a very high commission. You could make $500 from 5 clients when each of them pays you $100. Or, you could get that one client that helps you make a commission of $500 from a single order.

·         Be Honest

It is extremely important for an IB to be honest in their dealings. An IB largely operates as an advisor to the client. You make money by charging a commission from your client. The amount of money you make as the commission depends on how lucky your clients get with the investments or trades they make.

You must be honest and help your clients make the right kind of investments. Many IBs try to cheat their clients. While this might help them make a quick buck, it harms their reputation in the long run and doesn’t allow them to prosper.

How Does An Affiliate Make Money?

A CPA or a Cost Per Avulsion methodology is what an affiliate uses. A metal broker pays a CPA when a client referred by you deposits capital at the firm or engages in a certain volume of trades. Brokers tend to look for clients that would want to trade and not become dormant after getting themselves registered. 

The payout structure is actually one of the biggest differentiating factors between an affiliate and a broker. Since affiliates are entitled to a cost per avulsion, they get a one-time benefit after referring a client. Sometimes, introducing brokers, too, can get a CPA and gain something from the relationship a forex broker has with their client.