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Agreement directly with FCM vs Introduction Broker


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Agreement directly with FCM vs Introduction Broker

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  #1 (permalink)
 roadahead 
Dubai UAE
 
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Hello everybody!

Can somebody please explain what's the difference between having a direct agreement with FCM/broker (AMP, Interactive Brokers etc.) and agreement with same companies through some Introduction Broker? For example, I can open an account with AMP directly, or through, say, Optimus. Which way I'd better go?

Thanks!

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  #3 (permalink)
 awesomizer 
Portage, MI
 
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I too would like to know what the differed would be from just go straight to dorman or phillip capital for instance and setup an account to trade instead of going through an IB. IE is it cheaper or more dangerous since most IBís will auto-liquidate? Or is it more expensive since you wouldn't get volume discounts? Not sure if FCMís handle auto liquidation or the IB does.

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 bobwest 
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awesomizer View Post
I too would like to know what the differed would be from just go straight to dorman or phillip capital for instance and setup an account to trade instead of going through an IB. IE is it cheaper or more dangerous since most IBís will auto-liquidate? Or is it more expensive since you wouldn't get volume discounts? Not sure if FCMís handle auto liquidation or the IB does.

Hi @awesomizer,

To be clear, your account is held by the FCM. "Held" means that they have the money and they are responsible for your trades. If you have a trade inquiry, you would normally contact the support people at your IB, but they would then... wait for it... contact the support people at the FCM to find out what went on.

Here is a simple definition of an FCM: https://www.nfa.futures.org/registration-membership/who-has-to-register/fcm.html

Here is a discussion of what an IB does, in relation to an FCM: https://www.cmegroup.com/education/files/IBhandbook.pdf

(If by "auto-liquidate" you mean, liquidate your positions so you don't take delivery at settlement... the FCM does that, and every other thing on your account, financially speaking. If you mean something else, well, if it has to do with money, it's done by your FCM, which is where your money actually is.)

This doesn't mean that an IB is not important. For example, NinjaTrader Brokerage is an IB, and they are also the sole proprietor of the NT platform, so they can decide which FCM gets to offer it and which do not. Also, NT Brokerage uses either Dorman or Phillip as FCM's.... at least now they do. At some point soon, the NT accounts will all go to NT's newly-acquired FCM, TransAct, now wholly-owned by NT Group. (See recent NT posts for details if you missed it.)

So the hierarchy is as follows: there are IB's ("Introducing Brokers"), which are service and sales organizations. They open their customer's accounts with any of the FCM's they have agreements with. They actually refer (introduce) their customers to the FCM's -- the FCM's apply their own criteria of financial suitability to the applications, and accept or reject the customer's application. If they accept, then the customer sends them the money and they open the account. You can say that you have an account with, say, NT Brokerage, and in a way you do, because NTB will service you if you have questions and is in control of your use of the NT platform.... but your money is with Philip or Dorman, period. They are your broker, in this sense at least.

Yes, it's weird, but there it is. There are lots of traders in the world (me, for instance) who do not have an IB, because they opened their account directly with the FCM. Do you need an IB? Well, look at what the IB is offering you. You can open an account with Philip or Dorman directly, and I believe you can use NT8 as your trading platform with them if you do (check their website to be sure....) But, since NT owns the NT platform, there will come a time when they migrate the FCM accounts to their own FCM. What happens if you don't want to go? I have no idea. Read you agreement with them and stay tuned for their announcements. They may still support Philip or Dorman for the platform. Who knows yet?

I just want to be sure you understand what an IB is and what an FCM is. You've put up a few questions on the topic, and I would like to know that you are clear about it. Any particular issues about any trader's rights and obligations regarding their IB or FCM will depend on whatever agreements they have made with them. Of course, you are also free to move on if you wish.

And, to be clear, you don't have to have an IB. I don't, never have. If you think it is helpful to you because of something unique they offer, go ahead. But your money is with the FCM.

Bob.

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  #5 (permalink)
 awesomizer 
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Hey @bobwest I appreciate your response. I was a little unclear on the differences between IB's and FCM's and found your links helpful. What I am unable to figure out is if it would just be cheaper to go to a FCM directly. After reading most of the IB handbook it is now my impression that unless an IB also offers a trading platform, the only main benefit to using an IB is for trading tips and guidance

Since I am not necessarily interested in a brokers guidance on how to trade could someone tell me if it would be cheaper with commissions to go to a FCM like @Phillip Capital directly or if an IB like @EdgeClear that has no platform but offers volume pools would end up costing less?

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 bobwest 
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awesomizer View Post
Hey @bobwest I appreciate your response. I was a little unclear on the differences between IB's and FCM's and found your links helpful. What I am unable to figure out is if it would just be cheaper to go to a FCM directly. After reading most of the IB handbook it is now my impression that unless an IB also offers a trading platform, the only main benefit to using an IB is for trading tips and guidance

Since I am not necessarily interested in a brokers guidance on how to trade could someone tell me if it would be cheaper with commissions to go to a FCM like @Phillip Capital directly or if an IB like @EdgeClear that has no platform but offers volume pools would end up costing less?

Thanks.

No idea about the relative virtues of an IB compared to an FCM, other than some simple things like a proprietary platform if they have one, such as NinjaTrader's (NT is an IB, and their platform definitely adds value.) I've never used an IB, so I have no direct experience on the subject.

I would definitely want an IB to make a good case for me to use them, but the particular IB I was considering might be able to. As to costs, you may just need to check around. Every broker, FCM or IB, is going to have their commission and fee schedules somewhere, and you could find it (although you might have to talk to them directly first.)

Someone else may have a better response, or may have direct experience that is pertinent.

Bob.

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