A Futures Clearing Merchant (FCM) is a full, licensed broker-dealer who has met the current $20 million NFA capital requirement.
An IB (Introducing Broker) is an independent who routes trades and uses the trading platform and clearing services of a larger FCM (Futures Clearing Merchant) broker-dealer. IBs now must also meet a modest capital requirement but they are still essentially a coattail on the FCM.
The rationale for using an IB is that they may offer a higher level of customer care or value-add services you want and cannot get from the brokerdealer. An example of a value-add IB is HawaiiFOREX (GFTFOREX), which offers a structured educational program currently based on the work of Joe DiNapoli; www.atcbrokers.com (FXCM) with a variety of platforms. Service can also be a legitimate reason to prefer an IB over its own FCM as in the instance of www.tradeviewforex.com (IKONGM) although in this particular case the FCM also offers excellent customer care. Of course, everyone in the chain wants to get fed although markups are generally quite small.
No two traders are alike, and the landscape is constantly changing. Broker recommendations per se are risky business. That said, the author’s consensus opinion is that the new trader should open a demo account with one of the Big Three, an ECN, a market maker, and perhaps an IB to get a good look at the broker-dealer landscape. If your FOREX career blossoms—and we hope it does—move on to one of the larger ECN brokers. It is now possible to actually start with an ECN, but I still recommend testing the waters with a market maker in the mix. See Appendix A, “How the FOREX Game Is Played,” which discusses the current issues of importance to traders with respect to brokerdealer structure and practices.
All of this said, over the past five years things have gotten better, not worse, for the retail FOREX trader. What is true today may not be true tomorrow—one reason most traders hold accounts with multiple brokers.
An IB (Introducing Broker) is an independent who routes trades and uses the trading platform and clearing services of a larger FCM (Futures Clearing Merchant) broker-dealer. IBs now must also meet a modest capital requirement but they are still essentially a coattail on the FCM.
The rationale for using an IB is that they may offer a higher level of customer care or value-add services you want and cannot get from the brokerdealer. An example of a value-add IB is HawaiiFOREX (GFTFOREX), which offers a structured educational program currently based on the work of Joe DiNapoli; www.atcbrokers.com (FXCM) with a variety of platforms. Service can also be a legitimate reason to prefer an IB over its own FCM as in the instance of www.tradeviewforex.com (IKONGM) although in this particular case the FCM also offers excellent customer care. Of course, everyone in the chain wants to get fed although markups are generally quite small.
No two traders are alike, and the landscape is constantly changing. Broker recommendations per se are risky business. That said, the author’s consensus opinion is that the new trader should open a demo account with one of the Big Three, an ECN, a market maker, and perhaps an IB to get a good look at the broker-dealer landscape. If your FOREX career blossoms—and we hope it does—move on to one of the larger ECN brokers. It is now possible to actually start with an ECN, but I still recommend testing the waters with a market maker in the mix. See Appendix A, “How the FOREX Game Is Played,” which discusses the current issues of importance to traders with respect to brokerdealer structure and practices.
All of this said, over the past five years things have gotten better, not worse, for the retail FOREX trader. What is true today may not be true tomorrow—one reason most traders hold accounts with multiple brokers.
