Introducing brokers, also known as IBs, earn from rebates that they have gained through a specific commission structure. Normally, the commissions are earned in USD. Typically, a higher trading volume that is generated through client references results in greater rewards. Read on to learn more about how the IB commissions work.
The Commission Structure of Rebates
Rebates are the most common commission structure used by an introducing broker (IB), which revolves around the referred clients. Here is what happens: once the referred clients start to trade, the introducing broker starts tracking the trading activity, including the number of trades and the number of trades. With that said, the commission or rebates are analysed based on the trading activity of the trading clients.
While the exact method of calculating the commission varies, here are the most common commission models:
Commissions Based on Trade Volume
When it comes to this model, the introducing broker receives commission based on the number of trades executed by the clients that the brokers referred to the brokerage. The amount received by the introducing broker can be either fixed or a specific percentage of the commission or the spread.
Commission Based on Spread Sharing
Following this model, the introducing broker gets a set portion of the spread that has been charged by the broker on the trades that were made by the referred clients.
Nonetheless, the broker pays the commission in the form of credits or cash. Also, the broker might pay the broker on a daily basis.
The Commission Structure of CPA
Another commission model that is common for introducing brokers is the CPA model. CPA is referred to as the Cost-Per-Acquisition model, which is a popular commission structure in the world of Forex. The CPA commission model differs from the rebate model in that its focus is on client acquisition rather than trading volume.
If you want to qualify as an introducing broker, you will have to meet certain criteria that have been set by the broker. Usually, the criteria include the following aspects:
Minimum Deposit
The first criterion includes the aspect that the trading client must complete a minimum deposit or a minimum amount of funds into the trading account.
Certain Trading Activity
The next criterion is about the client’s trading activity, where the client must execute a specific number of trades.
Account Verification
When it comes to the CPA, the client’s account must be thoroughly verified and aligned with the broker’s requirements. This includes complying with AML (anti-money laundering) and KYC (know your customer) regulations.
Rest assured, if the referred clients effectively meet the qualifying criteria, the introducing broker will receive payments.
Final Thoughts
Now that you know the common commission models used by introduction brokers, you might want to become an IB yourself. As an IB, you can earn loads of commissions. As a matter of fact, becoming an IB will help you establish an additional stream of income. Rest assured, becoming an IB comes with a low startup cost and doesn’t really require serious investment, which makes it a feasible business opportunity.
