Thus, clients who receive rebates from IBs and brokers are saving money on each trade and reducing their transaction costs. Developing a comprehensive understanding of what customers need allows the service-based IB to identify the right broker for a client as well as additional services they might need to achieve their trading objectives. Clients who use white labels get access to a new class of smaller more nimble brokerages potentially able to provide tighter spreads, client services, technology and the trading parameters that clients want.
Typically there is no cost to the retail client when using an IB as they are compensated by brokers.
As the FX industry handles the sweeping regulatory changes which are a result of the global financial meltdowns, introducing brokers have been forced to adjust their business models. Generally a service-based IB’s relationship with brokers also benefits retail clients since the IB can help clients secure bonuses and other offers they would otherwise be unable to access.
An FX client should contact both price-based and customer-service brokers to determine the value package when shopping for a broker. White label firms are brokers who outsource their liquidity from an FCM and act as their own entity.
If the FCM that is behind the white label goes out of business or is closed down there could be issues with delays in the transfer of funds and new trading conditions associated with the FCM or brokerage to which they transfer existing client accounts. The brokers benefit from this outsourced sales force by gaining clients and IBs are able to generate income from their leads. Brokers could just reduce the spreads paid by clients initially instead of having the clients pay a larger spread and then returning a portion.
They service all aspects of the client accounts just as a true broker would, including an operations department, trading account parameters, technology solutions, firm strategy and marketing. Clients should be aware of the brokerage actually clearing the trades so that they can evaluate these conditions.
It depends on the quality, demographic, potential value of the list and how the list brokers want to charge.
This model was started by IBs to attract clients with lower-cost offerings, but as the market evolves rebates are now also directly offered to clients by brokers and FCMs. Clients would save the same amount of money in fewer steps and there would be less work for brokers. Service-based IBs can be a great asset for clients in terms of broker access and general market knowledge.
The difference from an genuine broker is that a white label firm does not actually clear trades or, in most cases, hold client funds.
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