Posted in Finance, Accounting and Economics Terms, Total Reads: 300
Definition: Introducing Broker
Introducing Broker is a term used for brokerage firm which is involved in commodity broking or Futures broking. Introducing Broker directly deals with the client and leave trade execution and back office work to Futures Commission Merchant- Clearing Firm.
Each Introducing Broker has a contact with Futures Commission Merchant and FCM personnel is always available to execute that trades. Introducing Broker can have trading platform on which clients can trade but in this case account management is done by FCM. Clients’ money is also deposited with FCM in customer segregated accounts.
Generally, Introducing brokers have smaller offices all over the country. Sometimes it is one person operations in a city. The idea behind introducing broker is that they are better able to serve the clients as FCM will look after trade execution and maintenance of trading infrastructure and IB will only focus on servicing the clients. For every execution of trade FCM will charge particular amount of money and this is how FCM makes money.
FCM also have internal brokers who serve clients but most of their profit comes from Introducing Broker. When someone refers to commodity brokers, that means he/she is refereeing to Introducing Brokers. Introducing brokers are referred to as commodity brokers to distinguish themselves from clearing firms.
One of the examples of Introducing broker is Motilal Oswal Commodity Brokers Pvt. Ltd. In India.