An introducing broker partners with a futures commission merchant (FCM) to execute customer trades. There are various introducing brokers who use Interactive Brokers as their FCM. Why would I use an introducing broker instead of an FCM like Interactive Brokers (where I have an account) directly? Because the introducing broker may provide an interface that is better in some way than that of the FCM? Or because the introducing broker may partner with multiple FCMs, giving you access to more markets?
With Futures, to provide a higher level of customer support and more choices of software. I'm not sure what Introducing brokers work with IB. Lightspeed is an Introducing broker that introduces business on a fully disclosed basis to Wedbush Securities and Wedbush Futures. We only introduce business to IB for one platform, LiveVol X.
There are thousands of IBs but only 62 FCMs (list attached). Some are both IB/FCM like IB, Ninja and Trade Station. All IBs claim higher level of customer support and more choices of software.
It is because its a completely outdated business model that still keeps middlemen in the loop. The financial system in the US is the most outdated among any industrialized nation by far. Nobody in Europe or Asia does not even understand what FCMs or IBs are and for good reason, regulators in those regions streamlined the business and care about customers. Only in the US are regulators sleeping in the same bed as all other financial intermediaries.
As far as I know, introducing brokers act as the interface between the client and the FCM and they do not hold custody of clients' funds and usually do not execute orders on behalf of the FCM. Some might offer you a trading platform that allows you to connect directly to the FCM's system but ultimately it's the FCM that executes your orders and your money resides with the FCM. The biggest reason why one would use introducing brokers is 1) cost savings in terms of commissions. Usually when you sign up through introducing brokers, you get rebates on the commissions that FCM charges due to volume discounts that the introducing broker gets, the same as you book the ticket through a travel agency or expedia.com vs. directly with the airline and 2) superior customer service. A good introducing broker will talk to the FCM for you to resolve any issues that you may encounter with the FCM so you can concentrate more on your trading. Introducing brokers gets a cut from the FCM, FCM gets the additional business, and you as the client gets lower commissions and better customer service. Everybody wins. And yes introducing brokers may partner with multiple FCM's and give you more options to find the FCM that's most suitable for your trading needs. I have worked with introducing brokers in the past and my experience has been quite positive. But I am not aware of any introducing brokers that IB uses. I thought IB's discount enough, didn't think they would have any extra revenue to share. LOL
You obviously have not been in the United States or the West for long and have no idea how the financial system works here. LOL And there are introducing brokers also in Europe as well; they might work as white labels. And I am sure there are introducing brokers in Asia as well. If you are referring to China, China is not Asia. China's financial system is yet to be developed. LOL
Just shut up, will ya? You obviously have zero clue what you are talking about. You have obviously never lived in Europe or Asia. I have. Everyone who has will second my claims. If you have no clue on a topic how about just keeping that mouth shut...
You may have lived in Europe but have you ever traded with brokers from Europe? If you haven't, guess who's the one who needs to shut up.
There are several reasons why an FCM would prefer to use an Introducing Broker to bring them business vs direct. And yes, they do this in MANY countries including Europe and Asia. The FCM does not want to staff to cover sales and customer support for many retail accounts. They prefer a small number of larger accounts institutional clients. They charge a base clearing fee to the Introducing Broker that then charges the customer whatever they want, and that markup is their profit. The FCM supports a small number of trading platform, some have their own. The Introducing Broker can offer any of those. The other reason FCMs prefer this type of relationship is risk. The Introducing Broker is next in line for losses to the customer account. This spreads their risk out and give an incentive to the Introducing Broker to monitor risk. In summary, smaller full-time staff, and lower risk. Futures are a business of scale and risk control. You need scale to make money. This keeps their overhead down and risk lower and helps them get that volume they need to make money.