An Introducing Broker can be defined as the brokerage firm that directly deals with the client. While the clearing firm deals with the actual trade execution and related back-office work. The Introducing Broker has a relationship with the clearing firm; while the latter has a direct link with the securities market exchanges.

Clearing firms also referred to Investment Banks support trading platforms on which clients have the ability to place trades online. They are responsible for the management of accounts. The key feature of these firms is that customer deposits are maintained in customer segregated accounts.

Roles of an Introducing Broker

An Introducing Broker is basically to solicit clients for the Investment Banks. In practice, an Introducing Broker may be a one-person operation, while in other cases you can find large firms with big geographical reach. Introducing Brokers are better placed to service clients as they deal on the local level, with their primary objective being customer care.

Investment Banks largely focus on trade executions and trading infrastructure maintenance. They, therefore, outsource servicing and prospecting of clients to the Introducing Brokers. Through the division of tasks by the Investment Banks and Introducing Brokers, they are each able to enjoy economies of scale and concentrate on their core mandates, separately.

Introducing Brokers do not have the financial muscle to execute trade directly on behalf of their clients. A direct execution of securities trade requires an existing relationship with securities market alongside maintaining daily accounting for client trade transactions. Servicing of trading performs and creation of systems that expedite trade at the stock exchange are prohibitive along with other expenses.

Investment Banks would find it hard to have offices across each village around the country. Introducing Brokers will be found operating deep into the village for hedging of clients purposes. In the absence of the Brokers, the Investment Banks would find it very expensive and cumbersome to maintain networks across all villages.

Introducing Brokers, therefore, allow Investment Banks to conduct their business locally using the trading infrastructure provided by them. Advertising is one of the major expenses of an Introducing Broker. To put a control on costs most depend on their local market and use of referrals. In order to maintain clients, they have to endeavor to make trade recommendations to their clients who can then be able to be retained in the long-term.

Introducing Brokers do not execute directly customer orders rather they have to forward and rely on Investment Bankers. In the wake of an increase in regulation in recent years, due to cases of funds from clients being lost, the market has become much regulated. Introducing Brokers in this regard act to safeguard investor funds, through keenly and accurately following the transactions to the final stage. Investment Banks also have to spend considerable time vetting and effectively monitoring Introducing Brokers practices through compliance and legal departments. This enhances standards and reduces malpractices.

Introducing Brokers offer free services to their clients with the end-game being that they get paid on a commission basis by clearing firms by the measure of business brought. These services may include software on the stock trade that improves trading information flow. Introducing Brokers are always on top of the game when it comes to the securities market. This is due to the fact that their hands-on knowledge and expertise is what bring clients and maintains them. It is therefore for this reason clearing firms invest heavily in platforms and strategies between them.


In all major financial markets, there will be an Introducing Broker who facilitates orders from retail and corporate customers. This intermediary between customers and clearing firms provides an enabling environment for the parties involved to make profits and protect their investments. The major means of getting the word out on behalf of clearing firms of available investment opportunities is the Introducing Broker.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

To Top