Introducing Broker (IB): Definition, Role, Registration, and Examples

By Akhilesh Ganti
Updated December 30, 2023
Reviewed by Charles Potters
Fact checked by
Hans Daniel Jasperson
Hans Daniel Jasperson
Fact checked by Hans Daniel Jasperson
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Hans Daniel Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states.
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What Is an Introducing Broker?

An introducing broker (IB) is a professional adviser in the futures markets who has a direct relationship with a client but delegates trade executions, typically to a futures commission merchant (FCM).

The introducing broker may be employed by a company that is a partner of the commission merchant's firm or a direct subsidiary of it.

Key Takeaways

  • An introducing broker (IB) serves as a middleman, advising clients on futures investing and, as needed, referring them to brokers who work on the trading floor.
  • The role of the IB is similar to that of stockbrokers in the equities market.
  • The IB maintains the relationship with the investor while the commission merchant, or trader, handles the transactions and back-office operations.

Role and Responsibilities of an Introducing Broker (IB)

An introducing broker acts as a middleman, matching an individual or a company seeking access to the futures markets with a futures commission merchant who will take on the responsibilities of making the trade and handling the back-office operations.

Generally speaking, IBs make recommendations while the commission merchant executes the trade. The introducing broker and the broker who executes the transaction split the fees and commissions.

Introducing brokers play the same role in the futures markets as stock brokers do in the equities markets. However, they are regulated by different authorities. Stock brokers are registered with the Securities and Exchange Commission (SEC) and are regulated by the Financial Industry Regulatory Authority (FINRA). Futures introducing brokers are registered with the Commodity Futures Trading Commission (CFTC) and regulated by the National Futures Association (NFA).

This arrangement allows for specialization, with the IB focusing on the client while the FCM focuses on trading floor operations.

Today's FCMs provide trading platforms on which clients can place trades online and take responsibility for account management. However, it would not be financially feasible for an FCM to open storefronts across the country to serve their customers. IBs can provide that local service.

The Relationship Between IBs and FCMs

Many IBs are one-person operations, though some are larger, multi-location businesses. In any case, their primary goal is customer service. Outsourcing the prospecting and servicing of clients to the IBs creates economies of scale for FCMs and the futures industry.

Most IBs prefer to outsource trading because it frees them of the substantial overhead involved in executing trades, maintaining accounts, and handling financial reporting responsibilities.

IBs allow FCMs to do business on a local basis while using the FCM's infrastructure for trading.

What Is the Futures Market?

The futures market is the exchange in which traders buy and sell derivative financial contracts. These are agreements to buy or sell a specific commodity or financial instrument at a specific price and date. The price is locked in, and the buyer will gain or lose depending on the market price when the contract reaches maturity.

Futures have long had a role in the markets for major physical commodities such as crude oil, gold, and wheat. Producers and buyers in volatile industries obtain reasonable prices in advance. Traders may be seeking a hedge against possible losses or making a speculative bet on the direction of commodity prices.

There are also futures markets for stocks, indexes, and currencies, among others.

Who Needs an Introducing Broker?

An introducing broker is a financial adviser who specializes in futures investing. An investor who is interested in futures but not inclined to dive in alone would consult with an introducing broker.

Futures investing is relatively risky and relatively complex, even compared to stock investing. Anyone determined to participate directly should have a good understanding of the ins and outs of futures trading before jumping into it.

How Much Money Do I Need to Trade Futures?

Many platforms for futures traders require a minimum deposit of $5,000 to $10,000 to get started. Trading futures also requires margin deposits that can range from as little as $300 to more than $7,000 depending on the type of commodity being traded and the amount of the contract.

Keep in mind that a margin account is a type of collateral required in return for borrowing cash from the broker to finance trading. The collateral could disappear with a losing investment.

The Bottom Line

The introducing broker is best understood as the equivalent of a stockbroker in the futures market. A stockbroker maintains a relationship with clients and may recommend investment strategies or specific investments to their clients over time. They, like introducing brokers, are usually the middlemen. A trader on the floor actually executes orders for the clients. In the futures markets, that is the futures commission merchant or FCM.

Article Sources
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  1. FINRA. "Registered Financial Professionals."

  2. National Futures Association. "Introducing Broker (IB) Registration."

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