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Is an individual or company that refers clients to a Futures Commission Merchant (FCM) while leaving the work of the dealing desk, trade execution, accounting, etc. to the FCM . In this relationship, the FCM maintains the dealing desk operation and the IB maintains the relationship with retail clients. This is efficient because the work of a dealing desk operation vs. the work of maintaining relationships and meeting the needs of retail customers have different requirements.
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| Another way to think of an IB is that of a segmented firm. The IB is not a middleman, but is in a partnership with the clearing firm. The clearing firm manages the dealing desk and back office ops, and the IB is free to concentrate on his/her customers and their trading.Several myths concerning IBs need debunking. First of all, the notion that an introducing broker is a "middleman" or that fees or commissions are necessarily higher is wrong. It's also wrong to say that an IB is a branch office. Yes, an IB may have branch offices, but an IB is not a branch office of a FCM. |
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The IB is in a business partnership with an FCM, each handling their own piece of the work.When it comes to ordering, if you are trading through an IB, it need not be any less efficient than trading with a vertically oriented firm that does everything. When you call an IB with an order, s/he can relay that order directly to the dealing desk , or even give clients direct access to the dealing desk themselves. If you call one of the big, vertically integrated firms your order is likely to take as many or more steps than it would with an IB.
In terms of commissions, an IB may maintain a low overhead and that lets him/her charge reasonable fees while maintaing a lot of support and specialized service that a big discount firm simply can't provide. There's more to trading than commissions, although most novices don't understand that. |
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