Forex trading is rapidly gaining popularity among the masses. Forex or foreign exchange refers to the conversion of one currency to another. It has many applications like trade, finance, travel, etc. Forex trading is the process of conversion of one currency to another to earn profits.
What Is Meant by Forex IB?
Forex trading occurs on trading platforms via brokerage firms. A Forex IB (Introducing Broker) is a company or an individual who acts as its clients’ first point of contact to the forex market. It provides clients with training on trading and the necessary support to execute a trade. An IB essentially acts as an agent between the client and the broker.
An introducing broker earns commissions or spreads when the client executes a trade.
Functions of an Introducing Broker:
IBs aims to nurture and maintain long-term relationships with its clients. They usually provide the following services:
· Training courses
· Educational programs
· Mentorship/guidance sessions
· Cashback sites
· Recommendations for executing trades
· Notifications about the latest regulatory or policy changes
How Do IBs Earn Compensation?
IBs earn commission from the retail broker for the clients it introduces and the trades executed by such clients. An Introducing Broker chiefly has three avenues of income.
1. Cost per Acquisition (CPA):For every client, the IB convinces to sign up, the retail broker provides a certain amount to the IB. This usually depends on the deposits the new client maintains.
2. Compensation per Lot Traded:Whenever a client executes a trade on the trading platform, the IB receives a percentage of the spread earned by the retail broker. This is arguably the most profitable source of income for an IB.
3. Hybrid:This form of compensation combines the best of both worlds. It is essentially a blend of the abovementioned income avenues. IBs mainly use this compensation plan with many high-net-worth clients. Such IBs employ dedicated fund managers and experts to manage and invest their clients’ funds. Thus, they receive a portion of the funds invested by their clients while also earning commissions on the trades executed by those clients.
Role of a Trading Platform:
A Forex trading platform is a specialised software program to execute forex trades. It may be a web-based portal, a mobile application, or a downloadable program.
These platforms are made available to traders by their brokers. These days, trading platforms have interactive tools that facilitate research and order processing. Easy-to-read charts and graphs are provided, and historical trends are displayed on the forex platforms.
Importance of Trading Platforms for Introducing Brokers:
A major portion of the job of an IB includes imparting education and training to its clients about the ins and outs of forex trade. For most IBs, the client base includes relatively small retail traders who are quite inexperienced in forex trade. These traders heavily rely on the wisdom and guidance provided by the IBs they have subscribed to.
· The complexity of the Platform:
A good Introducing Broker should introduce its clients to a lucid trading platform that is easy to use. A platform with a high level of complexity and a bunch of advanced features might seem attractive to the untrained eye, but it might overwhelm a new trader.
On the other hand, large IBs who deal with high-net-worth clients have dedicated market research and investment teams. Their job is to bet with their client’s money and earn them the maximum possible profit margin. Such IBs need to undertake detailed research and should ideally have access to advanced tools that aid them in their work.
Thus, when it comes to trading platforms, choosing one with basic features or one with advanced research tools depends solely upon the IB and the client base it is dealing with.
· Platform Fees:
Platforms with basic features charge relatively lesser fees than their more complex counterparts. Hence, an Introducing Broker should choose a platform whose prices are proportional to the features it provides.
· Automated Trading Platforms:
With rapid technological advancement, the computational power of trading platforms has also increased manifold. Many platforms use Automated Forex Trading Software for forecasting the trends of currencies. It runs on a highly intuitive program that analyses price charts of currencies over a long period.
It also considers the activities and patterns of the market over the said period. It identifies market indicators such as price trends, the latest news that might affect the price of a currency, spread discrepancies, and so on. This software utilizes all the available resources to identify currency pairs that, in all probability, shall prove profitable soon.
When the user enters a specific set of criteria, the software starts searching for a profitable currency pair. When such apair is found,the program produces a buy or sell alert accordingly and automatically executes a trade.
The chief advantage of such a mechanism is that it nullifies the emotional component in a forex trade. Often, manual trades are influenced by personal emotions of exhilaration or fear. Such triggers are absent in an automated software program since it is solely based on solid market research and computational power.
Most brokers and IBs find such an approach very useful since it removes all human emotions from the equation and the errors in judgment that may accompany the same.
Tips for Becoming a Successful Introducing Broker:
· Get Certified:
Many countries like Australia, South Africa, and the United States mandate certain certifications that an individual should undertake to become an IB. On the other hand, if you wish to work as an IB in European Union, there is no such requirement. Know more mercados de divisas
Whether your country mandates certification or not, it is always a good idea to do the same. This shall boost your personal growth and showcase yourself as a trusted partner that retail brokers would like to partner with.
· Partner with The Right Broker:
The chief UPS of an Introducing Broker is his goodwill. Hence, it would be best if you never put that at risk by partnering with an untrusted broker. Always choose a regulated broker, so your client’s funds stay safe.