By Nathan Boardman
Client outreach poses a significant challenge for forex brokers, as their primary objective revolves around expansion and increased profitability. It is worth noting that many brokers collaborate with third-party entities to augment their client base and facilitate the growth of their business operations.
Typically, brokers commonly employ two agents for their professional endeavors:
- The Introducing Broker (IB) is an independent intermediary entity that seeks to facilitate introducing the broker’s services to prospective clients while also receiving remuneration through commissions.
- White Label (WL) refers to a business arrangement wherein a company establishes an exclusive partnership with a forex broker. This partnership enables the company to utilize the broker’s trading platform and technology, facilitating trading services under the company’s distinct brand.
Both options can enhance the broker’s customer base and generate increased revenue within a compressed timeframe while requiring reduced exertion. What additional insights can be gleaned regarding the distinctions between the two entities?
Introducing Broker (IB)
The Introducing Broker (IB) facilitates a streamlined collaboration framework that fosters effective partnerships between brokers and external entities. The objective entails introducing the broker’s services to prospective clients, with the added incentive of rewarding third parties for each successfully referred client. The role of IB entails serving as the initial point of contact for clients, facilitating their introduction to the Main Broker.
The rewards can be obtained through two distinct avenues:
- The remuneration structure entails fixed fee returns for each client introduced by the IB, with varying fee rates based on the account type and the initial deposit amount provided by the client.
- The remuneration structure entails disseminating and allocating a proportionate sum, based on a percentage, about every transaction the client executes in collaboration with the broker.
Some investment banks operate as sole proprietorships, whereas others function as larger corporate entities. The process of attaining the designation of an Investment Banker (IB) is characterized by a relatively straightforward progression. To initiate the licensing process, it is imperative to diligently adhere to the stipulations outlined in the Introducing Broker Agreement. Subsequently, the completed agreement must be promptly submitted to the designated entity, either the brokerage firm or the commission merchant.
Typically, it is customary for individual IBs to possess an existing affiliation with a broker company before submitting their application. In the United States, it is a requirement for individuals seeking employment as an Introducing Broker (IB) to be duly registered with the National Futures Association (NFA) as either a Futures Commission Merchant (FCM), Commodity Trading Advisor (CTA), or IB.
An Investment Banker (IB) will be provided with an identification number, a reference link, and promotional materials upon approval. Suppose a country does not mandate an International Business (IB) to possess a license. In that case, it is incumbent upon an applicant to furnish substantiation of their eligibility to function as an IB. This is commonly accomplished by providing a Letter of Compliance procured from a legal professional.
To effectively fulfill their responsibilities, investment bankers have the opportunity to engage in strategic collaborations with accomplished traders, money managers, investment advisors, proprietors of financial websites, and other platforms that exhibit substantial levels of user engagement.
To facilitate client referrals to brokers, there exist various strategies that Introducing Brokers (IBs) can employ. These include the implementation of email marketing campaigns, leveraging social media platforms for promotional purposes, and displaying the broker’s banner ads on the IB’s website, among other viable approaches.
Certain brokers may provide their affiliated Introducing Brokers (IBs) with a distinct hyperlink to monitor new clients and gain access to a designated platform. This enables the IB to obtain promotional resources, thereby facilitating the initiation of client-targeting efforts. When a client opens a trading account with the broker through the intermediary broker’s reference link, the intermediary broker shall receive compensation by the terms and conditions stipulated in the agreement or contract.
Traders may need help engaging in transactions with international brokers due to the inherent disparities in legal regulations and rules across various jurisdictions. In this particular scenario, it is worth considering that engaging with an intermediary such as an IB (Introducing Broker) can potentially yield several benefits, including:
The Comprehensive Guide
The primary function of investment banks (IBs) is to facilitate the connection between traders and brokers, irrespective of their nationalities and geographical locations. Local traders frequently need help engaging with international brokers without intermediary services, primarily attributable to linguistic disparities, divergent payment modalities, and other factors. Using IB services is highly advantageous, particularly for novice traders.
The Voice of Reason
To pursue a career as an Investment Banker (IB), individuals must satisfy the fundamental prerequisites and obtain the necessary licensure to engage in professional operations. Many investment banks also establish partnerships exclusively with brokers operating under the purview of legal and regulatory bodies, ensuring that traders can engage in their trading activities and transactions with heightened security. In essence, the utilization of Introducing Brokers (IBs) by traders serves the purpose of mitigating the presence of unregulated brokers, who may exhibit dubious practices with potential fraudulent intent and a heightened susceptibility to insolvency.
The Host of Extra Bonuses
Intermediary brokers (IBs) frequently employ promotional incentives and complimentary items to enhance visibility among prospective clientele to secure the trader’s dedication to conducting transactions through their services. The availability of such a service is limited among most brokers, prompting traders to prioritize exploring the offerings of Introducing Brokers (IBs) offerings before selecting their primary trading partner.
The Expert Help
Novice individuals often possess restricted knowledge about the intricacies of forex trading endeavors and discerning an appropriate broker. In this particular scenario, numerous investment banks extend their support by offering consultation services and expert assistance to furnish traders with the necessary information. Intermediating between traders and brokers, Introducing Brokers (IBs) assume the pivotal role of imparting traders comprehensive knowledge and insights about the forex trading industry. To fulfill this objective, it is imperative to furnish a complete elucidation or promptly respond to clients’ inquiries about trading.
Customer Support
In certain instances, individuals with investment banking backgrounds may engage in the provision of customer support services to clients of brokerage firms. The individual in question is responsible for providing accompaniment and guidance to clients during the execution of trading activities. In addition, it should be noted that Introducing Brokers (IBs) are equipped to handle and address any grievances or inquiries about the trading conditions the broker offers.
Frequently, clients may experience various issues, including but not limited to sluggish execution, unresponsive charts, system errors, unsuccessful transactions, and similar occurrences. Using an intermediary broker (IB) facilitates the client’s ability to submit a comprehensive report on such issues and subsequently receive a prompt and efficient response.
White Label (WL)
The White Label (WL) platform is characterized by distinct objectives and a more intricate operational framework when compared to the IB platform. WL operates its forex brokerage, distinguishing itself by utilizing its brand rather than directing clients to the Main Broker. The business model of Forex WL entails establishing a collaborative partnership with an established forex brokerage firm, as per a mutually agreed upon agreement. This collaboration grants Forex WL the privilege of accessing the brokerage’s trading platform and liquidity, which they can utilize under their distinct and exclusive brand.
The operational mechanics of WL are fundamentally similar to those of IB, albeit with the notable distinction that WL typically benefits from enhanced support and resources provided by the Main Broker. The trading platform permits the inclusion of the client’s logo, grants authority to regulate the spread magnitude, and facilitates client management. Instead of serving as an intermediary connecting clients and brokers, WL operates with its clientele and exclusively engages with brokers to leverage its suite of services.
In addition to the remuneration derived from the contractual agreement with the Main Broker, White Labels (WLs) also generate revenue based on the trading volume of their clientele, thereby operating in a manner akin to traditional brokerage entities.
In broad terms, it can be observed that WL operates at a distinct echelon when compared to IBs. A White Label brokerage encompasses a comprehensive operational framework, including its proprietary risk management system, payment service providers, and dedicated customer support infrastructure, among other essential components. However, a White Label (WL) must partner with the Main Broker, the designated technology provider responsible for furnishing the trading platform and offering comprehensive back-office support to ensure seamless operations.
There exist two distinct categories of WL, delineated by the range of services rendered:
- The primary constituents of Full WL encompass a distinguished trading platform and the capacity to receive customer deposits directly. A comprehensive wealth management platform can facilitate payment processing and client account management, containing the functionalities of executing payments and withdrawals on behalf of clients.
- The Limited WL offering encompasses the rebranded platform, albeit without the capability to accept customer deposits. The term “limited” in the context of the branded forex train does not imply reduced profitability or a complimentary experience. Instead, it signifies a constrained scope of amenities and services in comparison to the comprehensive offerings of Full WL.
The Full and Limited WL offerings do not encompass the following provisions:
- The inquiry pertains to the trading symbols associated with currency pairs.
- The operational hours for the commencement and conclusion of market activities.
- Matters about the computer security system.
