Overview
An Introducing Broker (IB) is a person or entity that solicits or accepts orders for futures contracts, commodity options, or swaps but does not accept money or securities from customers. Instead, IBs refer customers to a Futures Commission Merchant (FCM) or clearing broker that handles the actual trade execution and customer funds.
The IB-FCM relationship is governed by a formal Introducing Broker Agreement that defines responsibilities, compensation, compliance obligations, and liability allocation. This guide covers everything you need to know about structuring, negotiating, and complying with IB agreements under CFTC and NFA regulations.
Introducing Broker (IB)
A person or entity registered with the CFTC and member of the NFA that solicits or accepts customer orders for futures, options on futures, or swaps, but does not accept customer funds or securities. IBs must establish a written agreement with one or more FCMs to carry customer accounts.
💡 Why Become an IB?
The IB model allows you to build a customer-facing trading business without the capital requirements, regulatory burden, and operational complexity of becoming an FCM. IBs can focus on customer acquisition, technology, and trading advice while the FCM handles clearing, custody, and back-office operations.
IB vs FCM Relationship
Division of Responsibilities
Understanding the boundary between IB and FCM functions is critical for compliance and liability management:
| Function | Introducing Broker (IB) | Futures Commission Merchant (FCM) |
|---|---|---|
| Customer Solicitation | ✓ Solicits customers and accepts orders | ✗ Not involved in IB's customer acquisition |
| Order Acceptance | ✓ Accepts customer orders | ✓ Receives orders from IB for execution |
| Funds Custody | ✗ Cannot accept customer funds | ✓ Holds all customer funds in segregated accounts |
| Trade Execution | ✗ Does not execute trades | ✓ Executes all trades and clears transactions |
| Account Statements | May provide performance reports | ✓ Issues official account statements |
| Margin Calls | May notify customers | ✓ Issues margin calls and liquidates positions |
| Customer Disclosures | ✓ Provides IB-specific disclosures | ✓ Provides FCM disclosures and risk warnings |
| Books & Records | ✓ Maintains records of customer communications | ✓ Maintains official books and records |
| Capital Requirements | $30,000 - $45,000 adjusted net capital | $1,000,000+ adjusted net capital (varies) |
⚠ Critical Boundary: Funds Handling
The most important distinction is that IBs can NEVER accept, hold, or control customer funds or securities. Any funds handling immediately triggers FCM registration requirements. This includes receiving checks, wire transfers, or even holding funds "temporarily" before forwarding to the FCM.
Legal Relationship Structure
The IB-FCM relationship creates a three-party dynamic:
- Customer → IB: Customer has contractual relationship with IB for solicitation, advice, and service
- Customer → FCM: Customer opens account directly with FCM; FCM holds all funds and executes trades
- IB → FCM: Written IB Agreement governs referral arrangement, commission splits, and responsibilities
NFA Rule 2-36 Requirements
NFA Rule 2-36 governs the relationship between IBs and FCMs, setting minimum standards for IB agreements. All IB agreements must comply with these requirements or risk NFA enforcement action.
Mandatory Agreement Provisions
Under NFA Rule 2-36, every IB agreement must include:
- Written Agreement: The IB-FCM relationship must be documented in a written agreement signed by both parties
- Exclusive or Non-Exclusive: Agreement must specify whether IB is exclusive to one FCM or can maintain multiple FCM relationships
- Commission Arrangements: Clear description of how commissions are calculated and split
- Guaranteed IB Provisions: If guaranteed, must specify extent of guaranty and liability allocation (see Guaranteed vs Non-Guaranteed section)
- Termination Provisions: Notice requirements and procedures for terminating the agreement
- Customer Disclosure: Requirements for disclosing the IB-FCM relationship to customers
⚠ NFA Compliance Requirement
Both the IB and FCM must be NFA members in good standing. Operating without a compliant IB agreement is a violation of NFA rules and can result in fines, suspension, or registration revocation.
NFA Registration Requirements for IBs
Before entering an IB agreement, the IB must:
- Register with CFTC: File Form 7-R through NFA's online registration system
- NFA Membership: Become an NFA member and pay annual dues
- Associated Persons (APs): All APs must be registered and pass Series 3 exam
- Branch Offices: Register all branch offices where IB activities occur
- Adjusted Net Capital: Maintain minimum adjusted net capital (see capital requirements below)
| IB Type | Minimum Adjusted Net Capital |
|---|---|
| Independent IB (non-guaranteed) | $45,000 |
| Guaranteed IB | $30,000 (guarantor FCM liable for deficiencies) |
| IB also registered as CPO/CTA | $45,000 |
Clearing Broker Selection
Selecting the right FCM clearing partner is one of the most important decisions an IB will make. The FCM relationship affects customer experience, technology integration, commission economics, and regulatory risk.
Evaluation Criteria for FCM Selection
| Factor | What to Evaluate |
|---|---|
| Financial Stability | FCM's excess net capital, credit ratings, ownership structure, history of financial stability |
| Technology Integration | API quality, FIX protocol support, real-time data feeds, order routing capabilities |
| Commission Structure | Clearing fees, commission splits, volume discounts, breakpoint tiers |
| Product Coverage | Available markets (futures, forex, options), international markets, cryptocurrency futures |
| Customer Service | IB support desk, customer onboarding assistance, margin desk responsiveness |
| Regulatory Track Record | NFA examination history, enforcement actions, customer complaints |
| White-Label Options | Branded customer portal, co-branded statements, custom disclosures |
| Termination Risk | Historical IB terminations, contract stability, notice period requirements |
Top-Tier FCMs for IB Relationships
The following FCMs are commonly selected by IBs for clearing relationships (not an endorsement, perform your own due diligence):
- Interactive Brokers (IBKR): Strong technology platform, competitive pricing, global market access
- StoneX (formerly GAIN Capital): Forex-focused, white-label solutions, international presence
- Phillip Capital: Competitive commission splits, Asian market access, flexible technology
- Wedbush Securities: Established clearing house, strong compliance support
- Vision Financial Markets: IB-focused services, crypto futures support
💡 Dual FCM Strategy
Many IBs maintain relationships with multiple FCMs to diversify operational risk, access different product sets, and negotiate better commission terms. Ensure your IB agreement allows non-exclusive FCM relationships if you plan to use multiple clearing partners.
Commission Splits & Fees
Commission economics are the core of the IB business model. The IB agreement defines how commissions are split between the IB and FCM, what fees are charged, and how payment timing works.
Commission Split Models
| Model | Description | Typical IB Split | Best For |
|---|---|---|---|
| Fixed Per-Lot | IB receives fixed dollar amount per contract/lot traded | $2-$10 per lot | High-volume retail IBs |
| Percentage Split | IB receives percentage of total commission charged to customer | 60%-80% of gross commission | Premium IBs with high per-trade revenue |
| Tiered/Volume-Based | IB split increases at volume breakpoints | 50% at 0-1000 lots, 70% at 1000+ | Growing IBs targeting volume growth |
| Spread Markup (Forex) | IB earns markup on bid-ask spread | 0.2-1.0 pip markup | Forex-focused IBs |
| Hybrid | Combination of fixed per-lot + percentage of additional fees | $5/lot + 50% of excess commission | IBs with mixed customer segments |
Fee Structures Comparison
Customer trades 100 E-mini S&P 500 contracts at $4.50/contract commission
→ Gross commission: $450
→ FCM clearing fee: $1.00/contract = $100
→ Net commission: $350
→ IB receives 70% split = $245
→ FCM retains 30% = $105
Additional Fees to Negotiate
Beyond commission splits, IB agreements should address these fees:
| Fee Type | Typical Range | Negotiation Tips |
|---|---|---|
| Clearing Fee | $0.50 - $2.00 per contract | Lower with higher volume commitments |
| Exchange Fees | Pass-through (varies by exchange) | Not negotiable; passed through to customer |
| Account Maintenance | $0 - $25/month per account | Often waived for active accounts |
| Data Feeds | $20 - $100/month per user | Negotiate bulk pricing for IB platform |
| Wire Transfer Fees | $15 - $35 per wire | May be charged to customer directly |
| Inactivity Fees | $25 - $50/month | IB may negotiate to waive or reduce |
⚠ Fee Transparency Requirements
NFA Rule 2-29 requires IBs to disclose all compensation received from customers and from the FCM. Your customer agreements must clearly state the IB's commission, any markups, and the total cost to the customer. Hidden fees or undisclosed compensation arrangements violate NFA rules.
Payment Terms
IB agreements should specify:
- Payment Frequency: Daily, weekly, bi-weekly, or monthly commission payments
- Payment Method: ACH, wire transfer, or check
- Minimum Payment Threshold: Some FCMs require minimum balance before payout (e.g., $500)
- Chargebacks: How chargebacks for customer refunds or errors are handled
- Tax Reporting: FCM issues Form 1099-MISC for IB commission payments
Customer Disclosure Requirements
Both the IB and FCM have disclosure obligations to customers. Failing to provide required disclosures can result in NFA enforcement action and customer lawsuits.
IB Disclosure Document
IBs must provide customers with a written disclosure document that includes:
- Nature of IB Relationship: Explanation that IB is not the clearing broker and does not hold customer funds
- FCM Identity: Name and contact information of the clearing FCM
- IB Compensation: How the IB is compensated (commission structure, referral fees, markup)
- Conflicts of Interest: Any material conflicts (e.g., proprietary trading, affiliated entities)
- Disciplinary History: Any NFA or CFTC disciplinary actions against the IB or its principals
- Risk Warnings: Standard futures trading risk warnings required by CFTC regulations
- Customer Complaints Process: How customers can file complaints with NFA or CFTC
💡 Timing of Disclosures
IB disclosures must be provided to customers BEFORE the customer opens an account or places the first trade. Best practice is to obtain a signed acknowledgment that the customer received and reviewed the disclosure document.
FCM Account Opening Documents
In addition to IB disclosures, customers must receive and sign FCM documents:
- Customer Agreement: Contract between customer and FCM governing the account
- Risk Disclosure Statement: CFTC-mandated risk warnings about futures trading
- Account Application: Customer information, suitability, financial information
- W-9 or W-8 Form: Tax withholding documentation
Ongoing Disclosure Requirements
IBs must update disclosures when material changes occur:
- Change in FCM clearing relationship
- Change in IB commission structure
- New disciplinary actions or regulatory events
- Material changes to business structure or ownership
Guaranteed vs Non-Guaranteed IB
One of the most critical provisions in an IB agreement is whether the IB is guaranteed or non-guaranteed. This determines liability allocation, capital requirements, and operational control.
Guaranteed IB
Guaranteed Introducing Broker
An IB whose clearing FCM guarantees the performance of the IB's customer accounts and assumes financial liability for customer defaults, margin deficiencies, and regulatory violations. In exchange, the FCM typically exercises significant control over the IB's operations.
Key Characteristics:
- Lower Capital Requirement: $30,000 adjusted net capital (vs. $45,000 for non-guaranteed)
- FCM Liability: FCM is liable for customer defaults and margin deficiencies
- FCM Supervision: FCM exercises supervisory control over IB activities
- Customer Credit Risk: FCM bears customer credit risk and sets margin requirements
- Regulatory Examination: FCM is responsible for ensuring IB compliance
Non-Guaranteed (Independent) IB
Non-Guaranteed (Independent) Introducing Broker
An IB that operates independently without an FCM guarantee. The IB is solely responsible for compliance, customer suitability, and regulatory obligations. The FCM's liability is limited to trade execution and clearing.
Key Characteristics:
- Higher Capital Requirement: $45,000 adjusted net capital
- IB Liability: IB is responsible for customer suitability, compliance failures, regulatory violations
- Operational Independence: IB has full control over customer relationships and business operations
- Direct NFA Supervision: IB is directly examined by NFA (not through FCM)
- Customer Protection: IB must maintain errors and omissions insurance
Comparison: Guaranteed vs Non-Guaranteed
| Factor | Guaranteed IB | Non-Guaranteed IB |
|---|---|---|
| Adjusted Net Capital | $30,000 | $45,000 |
| Operational Control | Supervised by FCM | Fully independent |
| Customer Credit Risk | FCM bears risk | IB may bear risk (negotiable) |
| Regulatory Examinations | Through FCM's oversight | Direct NFA examination |
| Commission Flexibility | Often lower splits due to FCM risk | Higher splits; more negotiating power |
| Termination Risk | FCM can terminate for any reason | More stable relationship |
| Best For | Startup IBs, lower capital base | Established IBs, higher volume |
⚠ Guaranty Implications
If your IB is guaranteed, the FCM will typically require extensive oversight rights, including approval of marketing materials, customer acceptance criteria, and technology systems. Guaranteed IBs have less operational flexibility but benefit from lower capital requirements and FCM risk protection.
Risk Management Controls
IB agreements must address risk management procedures to protect both parties from customer defaults, operational errors, and regulatory violations.
Margin and Position Limits
The IB agreement should specify:
- Margin Requirements: Which party sets customer margin requirements (typically FCM)
- Position Limits: Maximum position sizes per customer or in aggregate
- Margin Call Process: Who issues margin calls and how quickly customers must respond
- Liquidation Authority: FCM's right to liquidate customer positions to meet margin requirements
- Risk-Based Haircuts: Additional margin for high-risk strategies or volatile markets
Pre-Trade Risk Controls
Modern IB agreements include technology-based risk controls:
- Real-Time Margin Monitoring: Automated systems to monitor customer margin in real-time
- Order Size Limits: Maximum order size per ticket to prevent fat-finger errors
- Daily Loss Limits: Automatic trading halt if customer exceeds daily loss threshold
- Restricted Products: Prohibition on certain high-risk products (e.g., VIX futures for retail customers)
- API Rate Limits: Controls on API order flow to prevent runaway algorithms
⚠ Liability for Customer Defaults
In non-guaranteed IB relationships, carefully negotiate who bears liability for customer margin deficiencies. Some FCMs require IBs to cover customer losses if the customer's account goes negative. This can create substantial financial risk for the IB if not properly managed.
Operational Risk Controls
IB agreements should address:
- Error Trade Policy: Procedures for correcting erroneous trades
- Cybersecurity Requirements: Minimum security standards for IB technology systems
- Business Continuity Plan: Backup systems and disaster recovery procedures
- Data Breach Notification: Timeframes for notifying FCM of customer data breaches
- Third-Party Vendor Management: Approval process for technology vendors with customer data access
Termination Provisions
Termination provisions are critical because they determine how the IB-FCM relationship can end and what happens to customer accounts during the transition.
Termination Triggers
IB agreements typically allow termination for:
| Trigger | Notice Required | Effect |
|---|---|---|
| Voluntary Termination | 30-90 days written notice | Orderly wind-down; customer transition period |
| Regulatory Action | Immediate termination allowed | NFA suspension, CFTC enforcement action, criminal charges |
| Material Breach | 10-30 days to cure | Violation of agreement terms, compliance failures |
| Capital Deficiency | Immediate or 10 days to cure | IB falls below minimum adjusted net capital |
| Customer Complaints | Immediate termination possible | Pattern of customer complaints or arbitrations |
| Change of Control | FCM consent required | Sale of IB, ownership change, merger |
Customer Account Transition
Upon termination, the IB agreement must address:
- Customer Notification: Who notifies customers of the termination (IB, FCM, or both)
- Account Transfer Options: Can customers transfer to another IB or stay directly with FCM?
- Open Position Handling: Procedures for closing or transferring open positions
- Commission Clawback: Whether FCM can recoup unpaid commissions from IB
- Tail Period Commissions: Whether IB continues to earn commissions after termination for existing customers
- Non-Solicitation: Restrictions on IB contacting customers to move to new FCM
⚠ Tail Commission Negotiations
IBs should negotiate for "tail" or "trail" commissions that continue after termination for customers who remain with the FCM. A typical tail provision is 6-12 months of reduced commissions (e.g., 50% of original split) for customer activity post-termination. This protects the IB's investment in customer acquisition.
Post-Termination Obligations
Even after termination, IBs may have ongoing obligations:
- Records Retention: Must maintain customer records for 5 years after termination
- Customer Arbitrations: Must respond to customer arbitrations filed post-termination
- NFA Examinations: May still be subject to NFA examination for period when agreement was active
- Tax Reporting: Must provide tax documentation for commissions earned during relationship
Technology Integration
Modern IB relationships are technology-driven. The IB agreement should clearly define technology responsibilities, API access, data ownership, and system uptime commitments.
Technology Provisions to Include
| Technology Component | Key Contractual Terms |
|---|---|
| Trading APIs | FIX protocol version, REST/WebSocket endpoints, rate limits, sandbox access, documentation standards |
| Market Data Feeds | Real-time vs delayed data, exchange fees, data redistribution rights, historical data access |
| Account Data Access | Real-time position/balance APIs, statement access, trade confirmation delivery format |
| White-Label Platform | Branding rights, custom domain, co-branded customer portal, mobile app options |
| System Uptime SLA | Guaranteed uptime percentage (e.g., 99.5%), credits for downtime, scheduled maintenance windows |
| Data Ownership | Who owns customer data, trading data, analytics; portability upon termination |
| Cybersecurity Standards | Encryption requirements, penetration testing, SOC 2 compliance, incident response |
Common Technology Integration Models
- Full White-Label: FCM provides branded trading platform, customer portal, and mobile app under IB's brand
- API Integration: IB builds proprietary platform using FCM's trading APIs and data feeds
- Hybrid Model: IB uses FCM's platform for account opening/back-office, but custom trading interface
- Referral-Only: IB directs customers to FCM's platform; minimal technology integration
💡 Technology Due Diligence
Before signing an IB agreement, request API documentation, sandbox access, and demo environments. Test order routing speed, data feed latency, and API reliability. Many IB relationships fail due to poor technology integration, not business model issues.
Sample IB Agreement Terms
Below is a sample outline of an IB agreement with key provisions. This is for educational purposes only and should not be used without review by qualified legal counsel.
Sample Introducing Broker Agreement - Key Provisions
1. Appointment & Scope
- FCM appoints IB as [Guaranteed / Non-Guaranteed] introducing broker
- [Exclusive / Non-Exclusive] arrangement
- Territory: [Geographic region or global]
- Authorized products: Futures on [exchanges], Forex, [other commodity interests]
2. IB Responsibilities
- Maintain NFA registration and good standing
- Provide customer disclosures and collect account documentation
- Perform customer suitability reviews
- Maintain adjusted net capital of $[30,000 / 45,000]
- Comply with NFA rules and CFTC regulations
3. FCM Responsibilities
- Accept and carry customer accounts referred by IB
- Execute customer orders and provide clearing services
- Hold customer funds in segregated accounts per CFTC rules
- Issue customer statements and confirmations
- Provide trading platform and API access
4. Commission Structure
- IB receives [percentage]% of gross commission OR $[X] per contract/lot
- FCM clearing fee: $[X] per contract
- Volume tiers: [breakpoints and increased splits]
- Payment frequency: [Daily / Weekly / Bi-Weekly / Monthly]
- Minimum payment threshold: $[amount]
5. Customer Funds & Margin
- IB shall not accept customer funds under any circumstances
- FCM sets all margin requirements and issues margin calls
- FCM has sole discretion to liquidate positions for margin deficiencies
- [If non-guaranteed: IB responsible for customer debit balances up to $[X]]
6. Risk Management
- Position limits: $[X] per customer, $[Y] aggregate IB book
- Real-time margin monitoring and automated liquidation triggers
- Pre-trade risk controls: [order size limits, daily loss limits]
- Restricted products: [list any prohibited instruments]
7. Technology & Data
- FCM provides API access under separate API License Agreement
- System uptime SLA: [99.X%] during market hours
- IB owns customer relationship data; FCM owns trading data
- Data portability: IB may export customer data upon termination
8. Termination
- Either party may terminate with [60/90] days written notice
- Immediate termination for: regulatory action, capital deficiency, material breach
- Cure period: [10/30] days for non-regulatory breaches
- Tail commissions: IB receives [50%] of split for [6/12] months post-termination
- Customer transition: FCM will notify customers; IB may not solicit for [6/12] months
9. Indemnification
- IB indemnifies FCM for customer claims arising from IB's conduct
- FCM indemnifies IB for claims arising from trade execution errors
- Each party maintains E&O insurance with $[X] minimum coverage
10. Miscellaneous
- Governing law: [State]
- Arbitration: NFA arbitration for disputes
- Confidentiality: 2-year confidentiality obligation
- Assignment: Requires written consent of both parties
⚠ Legal Counsel Required
IB agreements are complex legal contracts with significant financial and regulatory implications. Do not sign an IB agreement without review by an attorney experienced in commodity futures law and NFA regulations. The costs of a compliance violation far exceed legal fees for proper contract review.
IB Agreement Checklist
☑ Pre-Signature Checklist
Broker Comparison: IB vs FCM vs BD
Understanding how Introducing Brokers compare to other registration types:
| Factor | Introducing Broker (IB) | FCM | Broker-Dealer (BD) |
|---|---|---|---|
| Regulator | CFTC / NFA | CFTC / NFA | SEC / FINRA |
| Products | Futures, options, forex, swaps | Futures, options, forex, swaps | Stocks, bonds, options, ETFs |
| Funds Custody | No - cannot hold customer funds | Yes - holds customer funds | Yes (if clearing BD) |
| Trade Execution | No - refers to FCM | Yes - executes and clears | Yes - executes trades |
| Minimum Capital | $30k - $45k | $1M+ (varies by business) | $250k - $1M+ |
| Startup Costs | $50k - $150k | $5M - $20M+ | $500k - $2M+ |
| Registration Time | 3-6 months | 12-24 months | 6-12 months |
| Proficiency Exam | Series 3 | Series 3 + Series 30 | Series 7, Series 24, Series 63 |
| Best For | Futures referral model | Full-service clearing firm | Securities brokerage |
Next Steps
- Evaluate Business Model: Determine if IB structure fits your customer acquisition and revenue model
- Complete NFA Registration: File Form 7-R and complete Series 3 exam for all APs
- Select FCM Partner: Conduct due diligence on 3-5 FCMs; negotiate term sheets
- Draft IB Agreement: Work with commodities attorney to draft or review IB agreement
- Technology Integration: Build or integrate trading platform with FCM APIs
- Prepare Customer Disclosures: Draft IB disclosure document compliant with NFA rules
- Launch & Monitor: Begin customer acquisition and monitor compliance with IB agreement terms
🚀 Ready to Launch Your IB?
The IB model offers a capital-efficient path to building a futures brokerage business. With proper FCM selection, strong technology integration, and rigorous compliance procedures, IBs can build profitable, scalable businesses without the regulatory burden of becoming an FCM.