An introducing broker is an individual in the securities market that is responsible for relating directly with the client. This individual often delegates work of the floor operation and execution of the trade to another security merchant, usually a securities merchant. The merchant firm often is a close partner of the broker firm and at times part of the same firm. Simply put, introducing brokers make proposals while delegating the job of trade execution to a person who operates on the trading floor. Introducing broker and the security merchant who executes transaction split the subsequent commissions and fees according to an agreed formula.
Role of introducing a broker
Introducing brokers help in increasing efficiency and lowering of workload for securities merchants. This arrangement does allow for specialization as the introducing broker focuses on the client while the security merchant concentrates on trading floor operations. Introducing brokers are therefore middlemen between the clients and the securities market.
Securities merchants supply trading platforms on which clients can place trades online and are also responsible for the management of the accounts. Majority of security merchants would find it impossible financially to open offices all over the country to serve clients. It is this void that introducing brokers tend to fill since they operate typically out of small offices scattered around the country.
In many instances introducing brokers tend to be one-man operations while there are others who are more substantial and with a multitude of branches in different locations. Introducing brokers are better placed to service clients as they have a local presence, and their primary goal remains customer care. Outsourcing the prospecting and servicing of clients to introducing brokers does create economies of scale for the securities merchants and the securities industry.
Most introducing brokers do not have financial resources necessary to execute trades for their clients directly in the securities market. Dealing with the securities exchange requires they be in a direct relationship coupled with the enormous overheads of maintaining accounts, reporting, and trades, in addition to developing and preserving trading platforms. These financial costs are very high and would be uneconomical and unprofitable.
In the absence of introducing brokers, securities merchants would be compelled to hire brokers and maintain offices across all towns. Aforementioned would be very expensive and an inefficient method of conducting securities business. Introducing brokers in this regard can facilitate securities merchants to do business at the local level while using the infrastructure of the latter for trading.
Qualities of a successful introducing broker
Any person can try their hand at being an introducing broker, but those who excel tend to be those with prior knowledge of the workings of the foreign exchange industry well. Being experienced and having established connections is a significant plus. Scouting for clients is the job of an introducing broker, people who have typically a right amount of disposable income to invest.
An excellent introducing broker is one who can get many people interested in the securities trading and also importantly, guide the potential investors. Their roles include directing them in the right direction to get assistance and support. In this regard, a broker should keep updating knowledge on trends and movements to pass relevant expertise to clients. An introducing broker is not as occupied with many tasks like carrying out orders. They concentrate all their time on needs of their clients; training and advising on all matters relating to trades.
It is very natural for clients to be reluctant to hire introducing brokers mainly because of the fees they charge, and ordinary perceptions. The truth of the matter is that they do not cost too much. Hiring an introducing broker is never a waste of time, it can make the big difference between losing your funds and make a profit.