Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
I am relatively new to trading the correct wayand I am trying to understand several things.Right now my question is, what is the purpose of an introducing broker? from what I can see right now is it enables lower margins. Is there another benefit or a reason I can't live without one? Probably not asking the question right. just trying to understand the purpose ofan IB.
This is an excellent question for a new futures trader to ask, and to get the answer to. Basically the question is about the different kinds of futures brokers and the roles they play.
There are "introducing brokers" and "FCM's ("Futures Commission Merchants" -- yes, a strange name). You must have an FCM, which in a sense is your "broker" (they hold your money and get your trades routed to the exchange for execution), and you might or might not have an "Introducing Broker," which is a firm that "introduces" traders to FCM's.
IB's are service organizations that basically are oriented to providing services to traders that an FCM might not provide. However, many FCM's have full customer service staffs that also do this job, so what you get depends on the individual firms. Some FCM's essentially depend on their IB's to find and set up their customers and many will happily do it themselves, and many will have customers that have been "introduced" to them by an IB as well as customers who have contacted them directly and opened the accounts with them directly. If you open an account through an IB, it will open your account with the FCM.
An introducing broker has nothing to do with margins. For day-trading, margins are up to the FCM; for trades lasting more than the current trading day, the exchange (CME) sets the required margins.
There are IB's that provide serious value to traders, and there are those that are just account-openers for FCM's. Some IB's, for instance, provide their own trading platform or some other unique services to their customers. Again, it depends on the individual firms involved.
To be clear, your account is held by the FCM. "Held" means that they have the money and they are responsible for your trades. If you have a trade inquiry, you would normally contact the support people at your IB, but they would …
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
In my experience they are useful to take a cut of your money and nothing more, and to make the whole process of opening an account very slow and inefficient.
Last years I wanted to open an account and I decided to contact an Introducing Broker, I won't mention him but he is very well known he has tons of post in this website, seminars and youtube videos etc...
I tried to call him several times at different times of the day and on different days... no one ever answered the phone.
I sent several emails and I never had an answer back.
Imagine having a technical problem with an introducing broker like that and needing some immediate support. You will lose your account before he even answer the phone. He will probably be busy doing youtube videos and advertisement everywhere.
Forget the Introducing broker, call a real broker (FCM) and they will set you up in a couple of days.
Just to make it clear, at first I was more that willing to work with an introducing broker and not get married with one broker straight away but I found out that they are useless.
I had the same experience. No idea where profit and loss for the account was at times as they had no backend.
Commissions weren't updated till the next day.
Technical help literally told me "what do you want me to do? I'm the only one here"... then went on about his life story for 25min where he said some things he probably shouldn't have. Lol.
I should have closed my account right there. Nope I waited until I was close to needing to add funds only to wake up to a "Your account is in arrears. PLEASE MAKE PAYMENT NOW"
I brought my account back up to zero and closed the account... all on that day.
wow!! that's really incredible!
I also forgot to mention that once I managed to talk to an introducing broker and I explained him that I needed to see the full market depts of 300+ levels. He said "this does not exist, normally you see only 10 prices", so I mentioned to him Rithmic and other datafeed that offer the full DOM view. He said that it's illegal to see the full DOM....I didn't want to argue so I did not insist.
He then mentioned that he could offer me a solution with Rithmic datafeed and SierraChart. That was in July 2020 when Sierrachart had already stated basically everywhere that it did not accept working with Rithmic anymore. The introducing broker had no idea about that.
He insisted to me that Rithmic was working perfectly and smoothly with Sierra, which was not true since I had had problems before with the combination Rithmic+ Sierra.
To conclude, the Introducing broker had no clue about technology either.
However, introducing brokers are not necessarily going to be small fly-by-night or unreliable operations. It depends on who they are, and so your homework is important, just as it is when choosing an FCM. I'm sorry about people who had bad experiences, but there are some that add something.
For example, NinjaTrader Brokerage is an introducing broker for Phillip Capital and Dorman Trading, its FCM's. NinjaTrader is a major name in the futures world, and the added value they provide is the NinjaTrader platform, which is only available to a few brokers without going through the Ninja brokerage. So you would open an account with them not to get to Phillip or Dorman, but because you wanted the NT platform. (A few other brokers can offer NT as well, including Interactive Brokers. But very few.)
Tradovate is an introducing broker for Phillip and Dorman also. Tradovate has its own trading platform and a unique fee structure -- I'm not plugging either, and don't know much about either, but that's another example of something added uniquely by an introducing broker.
There are many others. You need to have a reason, in my opinion, to choose an IB or to have one at all. But the same goes for FCM's: you need a reason to pick the one you do. It should obviously be that they provide you with something that is at least as good or better than you can get somewhere else. In general, if an IB doesn't add something to just having an account directly with a particular FCM, there is no point in using them.
But, do your research. They are not all bad, and not all good either.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Thank you bobwest. As always you make some very good points.
My intent was not to dissuade anyone from accessing an IB if one suits thier needs.
It was just my experience. I had to learn the hard way.
If I can just say to anyone to make sure you know what your getting into before getting into it, I'd be happy.
I added very little of my overall capitol and and drove them nuts with questions as I did not understand exactly what they did and how they did it.
They are like a reseller. A reseller of commissions.
Some, like Ninjatrader are very value-added and have established services as you mentioned. And they use an FCM. I think some FCMs use other FCMs for clearing as well just to make it more confusing.
Some like the one that contacted me with $500 margins for e-mini S&P as thier hook may have been around for awhile (or not) but do not have infrastructure.
This one relied on third party software, offered limited documentation (which is why I bothered them so much), and limited customer support.
But my main concern the whole time was... this company is going to go bust with my money!
Thier business is built on selling very low margined accounts to as many people as possible.
They make money by adding a percentage to the commissions they get charged and charge you the difference for their service, and risk, they take for offering you this service.
Right, wrong or indifferent. That's business.
Some people dont have access to an FCM and have to choose another source and they can't all be bad as you kindly pointed out.
As you highlighted anyway my main point was do your homework FIRST.
If anyone notices errors in my understanding please let me know.
