There are various brokers who may be involved in the investment process of an investor who chooses to trade futures contracts. An introducing broker (IB) may assist in the education of investors in futures trading and futures markets, and may actively solicit traders for new and existing accounts.
Introducing brokers may provide trading and quote information, and even accept orders from traders. However, all funds, credit, margin, and positions are held with another entity, a registered futures commission merchant (FCM), who is independent of the introducing broker.
Even though the FCM and the IB are independent, they may charge the trader a commission and split the proceeds. While the IB can solicit and accept orders, all clearing and settlement functions must be executed by the FCM.
An independent IB is required to register with the Commodity Futures Trading Commission (CFTC) and maintain a minimum net capital as required by the CFTC. Introducing brokers are also subject to the oversight of the National Futures Association (NFA). The IB is allowed to execute trades with any FCM they choose.
A guaranteed IB is not required to maintain a minimum net capital position, as their requirement is guaranteed by an affiliated FCM, who is ultimately responsible for the regulatory and financial responsibilities of the independent broker. A guaranteed IB must execute all trades and hold all assets of the client at only one FCM, who is the guaranteeing FCM.
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| Introducing Broker |
Introducing brokers may provide trading and quote information, and even accept orders from traders. However, all funds, credit, margin, and positions are held with another entity, a registered futures commission merchant (FCM), who is independent of the introducing broker.
Even though the FCM and the IB are independent, they may charge the trader a commission and split the proceeds. While the IB can solicit and accept orders, all clearing and settlement functions must be executed by the FCM.
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An independent IB is required to register with the Commodity Futures Trading Commission (CFTC) and maintain a minimum net capital as required by the CFTC. Introducing brokers are also subject to the oversight of the National Futures Association (NFA). The IB is allowed to execute trades with any FCM they choose.
A guaranteed IB is not required to maintain a minimum net capital position, as their requirement is guaranteed by an affiliated FCM, who is ultimately responsible for the regulatory and financial responsibilities of the independent broker. A guaranteed IB must execute all trades and hold all assets of the client at only one FCM, who is the guaranteeing FCM.
