4 Steps to Becoming an Introducing Broker

become an introducing broker

New forex brokers have different ways to enter and offer forex trading services in one of the most fascinating and lucrative markets in the world. One way to do so is by becoming an introducing broker (IB). 

Much like an affiliate marketer, introducing brokers operates in collaboration with another brokerage firm that already has a client base and a successful profitable operation. However, an IB broker is much more than an affiliate marketer. It’s a real partnership between two firms where the IB broker is able to offer additional services and even make higher commissions.

Therefore, if you have the ability to attract forex clients and provide forex trading services, becoming an introducing broker could be the ideal solution for you. With the steps we have outlined in this article, you can start an IB business. But firstly, let’s understand what an IB Introducing Broker is…

What is an Introducing Broker (IB)?

An introducing broker, also known as IB, has a direct relationship with forex clients but without having to directly execute trades for them. Instead, the trades are executed by the brokerage firm with whom the IB partners. This means that the introducing broker directs clients to the partner broker, provides trading services such as consolation and customer support, and in return, receives a commission for every trade executed by the partner broker. 

Essentially, referring clients to a brokerage firm might sound like what an affiliate marketer does. However, there are some notable differences between an affiliate and an Introducing Broker. An affiliate basically can set up a website or simply refer clients by using affiliate links and get paid for referrals for the brokerage. An IB, on the other hand, not only brings in clients but also provides trading services and consultation. An IB can create long-term relationships with clients that are based on the quality of their services and the professionalism they offer. Secondly, an IB doesn’t accept and hold clients’ funds. Lastly, an IB does not need to have a compliance department and proceed with KYC procedures with clients.

How to Become an Introducing Broker (IB)?

If you are wondering how to become an Introducing Broker,  here are the steps you need to take. 

1. Find the Right Brokerage Firm to Partner with

The next step is to find the right broker you want to partner with. There are lots of forex and CFD brokers to choose from so this step might be the most important of all. In some cases, you might have to open a trading account with the prospective partner broker and find clients’ reviews about the firm. 

Further, you should consider the following aspects before you sign up with a partner broker:

  • Is the broker licensed and regulated?
  • What financial assets do they offer? Forex, CFDs, options, stocks?
  • How long do they operate in the forex trading industry?
  • What’s their reputation?
  • Do they have good trading platforms and mobile trading apps?
  • What’s their commission structure for IB?
  • Do they offer marketing assistance?

As we mentioned, finding a regulated brokerage firm to partner with is not an easy task. The forex industry is filled with unregulated brokers and occasionally, even scam brokers. As such, you need to ensure that clients get safe trades and are able to withdraw funds whenever they wish. Partnering with a regulated and reputable broker is essential for your success as an IB.

What’s more, you need to sell your clients a top-notch trading experience and preferably, low trading costs. So, an advanced trading platform and a mobile trading app will help you attract more clients. Additionally, a wide range of financial instruments would be another crucial factor. Make sure you choose a  partner broker that gives your clients access to shares, ETFs, Forex, commodities, indices, and cryptocurrencies. 

2. Close the Partnership Deal with the Partner Broker

Now that you have set your mind on a certain brokerage firm to partner with, it’s time to check out what they are actually offering you. Look at the execution model they have – ECN/STP or market maker, check their commission per trade, and understand all the terms and conditions they have for IB. 

Also, try to figure out whether the rates they offer match your clients’ style. If you can bring heavy traders with a large sum of money to trade with, you might have to choose forex brokers with VIP accounts, and special terms for those who trade with large account balances. Ask your partner broker how flexible they are with the commission types they offer and do they have special packages for the type of clients you plan to refer. Further, will they provide special trading tools for IBs? Do they offer a demo account? Islamic account? 

Then, once you have got the answers and you are certain you made the right choice – close the deal. 

3. Find Clients and Refer them to the Partner Broker

Now it’s time to find clients and refer them to your partner broker. After all, this is how you can make an income from becoming an IB.

To do so, you need to create a website and social media pages or use your existing contacts, if you have any of these. Try to differentiate yourself with the unique service and trading tools you provide your clients. Most importantly, be attentive to your clients’ needs and help them find a way to get reliable access to the market.

When your clients feel that you have the tools to provide them top-notch access to the trading world, you’ll be able to develop a long-term relationship and increase your client base. This will benefit you as an IB as well as the brokerage partner you are promoting. 

4. Build on Your Success

Lastly, you need to build a successful business. One way to do that is to develop an online presence by building a website, social media pages, newsletter, etc. Obviously, you’ll have to create a unique name for your business, whether you decide to use your personal name or a professional brokerage firm name. 

One thing you need to remember – in the world of online trading, reputation is everything. A successful introducing broker usually has the most satisfied customers. So, make sure your clients are satisfied with the trading experience you provide them and do everything possible to transfer that information forward. This can be done via reviews, forums, a YouTube channel, trading tutorials, etc. 

Becoming an Introducing Broker (IB) – Things to Keep in Mind

Now that you have the necessary information on how to become an introducing broker, here are some additional key points to keep in mind. 

You need clients, and you need them now!

As an IB, you need clients. And the more clients you have, the more successful your IB business will become. This means you need to get the word out quickly and aggressively. Use different marketing methods, and set aside a generous budget for marketing. If you don’t have clients, you cannot build a reputation and your business will fail sooner than expected. 

Find a business model

Finding a business model that works takes time, especially in a competitive industry like the forex one. Nonetheless, try to do your best in order to build a business that works for all sides – that is your company, your forex clients, and your partner broker.  

Some forex brokers prefer working with beginner traders while others insist on working with professional high-volume traders. It all depends on the circumstances. Be attentive to your partner broker and make all the calculations that may benefit all sides. If doing so, eventually, you’ll be able to find the right business model. 

Make your partner broker satisfied

In this arrangement, your partner broker is your most important client. Make sure you not only choose a brokerage partner that is regulated and licensed, but also a broker that has a good staff so you can build a long-term relationship and mutually profitable partnership. Also, ensure they are happy with the service you provide and ask them occasionally if there’s anything you can do to improve your offerings.


Become an Introducing Broker Now!

With more people joining the online trading arena and looking for ways to grow their wealth, now is the best time for you to find a partner broker and build your own client base. Start today by reaching out to them, and making the first step to create a successful IB business.


Trading Indices vs Forex – Which Should You Trade?

Since the early years of this century when the forex market has become accessible to every individual investor, many retail traders wonder whether they should trade forex, or perhaps stock indices. Deciding which of the two markets you should trade can be complicated, and there are various factors that you need to consider before making a decision. 

This article will help you understand better the similarities and differences between trading stock indices and trading FX currency pairs and choose that asset class that suits your personality, trading strategy, and trading style.

Key Points to Take Away

  • Trading indices and trading forex are two of the most popular forms of trading.
  • The key differences between stock index trading and trading forex pairs are the way a trader needs to analyze the markets, the leverage ratio provided by brokerage firms, the range of assets, and volatility.
  • While forex trading is more suited for active day traders, indices trading generally works best for medium and long-term investors.

First, What’s the Difference Between Trading Indices and Forex?

To begin with, both the forex and the stock markets are among the most liquid financial markets in the world and are extremely popular among short-term traders. This is partly because there’s plenty of news and information when trading one of these two markets, and it is, therefore, easier to take a large number of trades in a short period of time. Beyond that, both markets are very liquid, which is an essential factor for beginner traders who always need a buyer or a seller on the other side of the trade. 

The key difference between these two asset classes is that when trading forex, you essentially buy one currency and sell the other, meaning you usually need to analyze two economies. In other words, you need to be aware of the interest rates of each currency, the economic performance of the country as a whole, and the expectations of a rate hike rate cut. 

On the other hand, trading major indices typically require you to focus on one market, one economy, and the assets (companies) that the stock market index is composed of. This Is because a stock index is not traded versus other assets and generally has an upward bias due to the nature of the stock markets. Consequently, it would be fair to say that stock indices are generally more suited for long-term investors or medium-term traders.  

What’s more? Index trading typically has wider spreads, which makes it, once again, less suited for active day trading, or scalping. When you trade stock indices, it is a challenge to make intraday profits due to the relatively high spread charged by brokers, the low leverage, and the low volatility (when compared to stocks and forex currency pairs). As such, most people who trade indices usually focus on swing trading (holding poisons between 2-5 days). As for forex – some brokers offer zero spread on FX currency pairs so with the combination of high leverage and very low trading commissions – the forex markets are the ideal playground for active day traders.

Trading TIP

Leverage in trading is known as a double-edged sword – It increases the potential of making profits but also the risk of losing money rapidly

Trading Indices vs Forex – Which Market is Better for Beginners?

Beginner traders and those who prefer simplicity generally will choose to trade indices. With stock indices, trading is very simple and straightforward. After all, almost every person on the planet has some basic understanding of the stock markets, and thus, analyzing stock indices requires a less tactical approach and in-depth knowledge. 

The forex market, on the other hand, is more complex. Investors who want to start trading forex need to learn the basics of the forex market and understand what forex is and how it works
Nonetheless, when it comes to choosing which is the best market for you to trade, there is no decisive answer to this question. Each market has its own pros and cons and there’s no reason for you to not take advantage of both markets, especially if the broker gives you access to both of them.

What are the Possible Ways to Trade Indices and Forex?

One thing you should note: stock indices are not traded on a stock exchange. They are simply benchmarks that track a list of stocks on a certain exchange and are used to measure the growth of the general stock markets. What it means is that, unlike trading stocks, the only way to trade indices is via futures contracts or via CFDs (Contract for Differences). For those unaware, CFDs are financial derivatives that enable traders to speculate on the market movement of assets without owning the underlying assets.

Trading forex is more accessible to ordinary people and there are several ways for any individual to speculate on the price movement of currency pairs. These include the spot market (via bank or a forex change store), futures, and trading CFDs.

Indices vs Forex – Number of Available Markets and Instruments

A crucial factor to consider when choosing an asset class to trade is the range of assets available on each market. When comparing indices to forex, trading the forex market clearly offers more markets and instruments than trading stock market indices. 

Whether you decide to start trading indices via stock index futures contracts or via CFDs, typically you’ll get a range of 15-20 assets. On the other hand, every CFD and forex broker usually offers a range of at least 30 currency pairs, with some brokers like Switch Markets offering a higher selection of 60+ FX pairs

For various reasons, forex traders typically focus on major currency pairs that include the EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD, NZD/USD, and USD/CHF). These pairs are the most popular and liquid assets and are widely covered in the media. Additionally, most forex brokers offer very high leverage for major currency pairs and very tight spread – another incentive for traders. Some traders, however, prefer to stick with exotic currency pairs, largely due to extreme price movements and the high volatility. 

So, all in all, when compared to indices, the forex market offers a larger variety of assets (at least 100+ assets).

On another note, a useful tool that can assist you in analyzing currency pairs and stock indices is our market heap map that highlights the daily strengths and weaknesses of different assets.

Market Heat Map - Currencies and Indices
Market Heat Map – Currencies and Indices

Forex Trading vs Indices Trading – Key Similarities and Differences

Below, we break down the key similarities and differences between trading forex and indices. 

Similarities

Liquidity – Both markets are extremely liquid, offering investors to get market execution at any given moment.

Both Rely on Macroeconomic News – One of the key similarities between indices and the forex markets is the way you need to follow market news and economic data. Unlike stock trading which requires you to spend time on picking and analyzing public-traded companies, trading indices and foreign exchange currency pairs are based on macroeconomic factors and the economic state of countries. 
Market Trading Hours – Even though the stock markets are open for a limited time during the day, nowadays you can trade indices futures or index CFDs 24 hours 5 days a week, much like the forex market.

Differences

Analyzing the Markets – As we mentioned before, the way a trader analyses the forex market and stock indices is a bit different. This is because stock indices are a collection of top-performing stocks and do not trade against another financial instrument. Hence, a trader needs to analyze the economic performance of the country and be aware of any developments in the companies that composed the index. When analyzing currency pairs, a trader must have more macroeconomic knowledge and be aware of the factors that affect the price movements of forex pairs one versus the other. 

Leverage Ratio – Assuming you decide to trade one of these asset classes via a CFD broker like Switch Markets, then you’ll be able to use the leverage that gives you the option to trade with higher capital than initially deposited. In this case, the leverage provided for forex tends to be much higher than indices and other markets.  On most CFD platforms, traders generally have access to 30:1 for currency pairs and 20:1 for indices. That said, some CFD brokers like Switch Markets provide a higher leverage ratio for FX currency pairs that could be as high as 500:1. 

Range of Assets – Usually, regardless of the trading platform you are going to choose you’ll be able to get access to 10-15 most traded indices. On the other hand, if trading forex, you get access to at least 30 FX currency pairs, and some brokers even offer a larger selection of 100+ currency pairs.  

Volatility – Forex has the lowest volatility of all markets, partly because currency pairs have a major role in civilians’ income and in a country’s economic performance. 
Price Gaps – Because the forex market is open 24 hours a day five days a week, price gaps are less common in the forex market than in indices.

Forex TradingIndices Trading
Best ForActive day tradingMedium and long term investors
Range of AssetsOn most trading platforms –  50+ currency pairsOn most trading platforms –  around 10-15 stock indices
Leverage Ratio via CFDsUsually between 30:1 to 500:1Usually around 20:1
How to TradeSpot, futures, and CFDsFutures and CFDs

Trading TIP

To trade indices, investors need more capital than they do with forex. On the other hand side of the coin, trading indices are presumably less risky due to the lower leverage ratio provided by brokerage firms.

Final Thoughts

The bottom line, index or forex trading will serve your purpose to be able to place a large number of orders on a trading day and find lots of trading opportunities. Both markets are liquid and volatile enough and the flow of news and analysis will help you form your own trading plan and strategy.

Ultimately, I still think the best way to make an informed decision on the asset class you want to focus on is to try both markets and see where you feel more comfortable. Even today, very often I switch between markets with the intention of finding the right trade. You should do the same, at least at the beginning of your trading journey. Luckily, some CFD brokers offer you to open a trading account (or a demo practice account) where you get access to a number of markets including, obviously, the forex market and stock indices.

FAQs

Is forex trading riskier than index trading?

Well, that is a matter of opinion. Trading is subjective and every trader feels more comfortable in other markets. Some prefer to trade the volatile crypto jungle while others prefer to trade less volatile assets like fixed-income assets. 

Still, while many people like the flexibility of the forex market, it is known as a riskier market for one primary reason – that is the high leverage provided by forex brokers.

What’s better for beginners – indices or forex?

The way I see it, if you choose the right platform then you should try to have the best of both markets. Financial markets like the forex markets and indices are connected beyond generic correlations, which means you can follow all markets and find trading opportunities in any market you have access to. 

What are the most popular indices in the world?

Some of the most popular and widely traded stock indices around the world include the S&P 500, NASDAQ100, Dow Jones Industrial Average 30, Nikkei 225, FTSE 100, CAC 40, and DAX 40.

What’s the relationship between stock indices and currency pairs?

In normal market conditions, stock indices and the forex market don’t have a high correlation. Also, each stock index has a different relationship with its domestic currency, which means every case has to be assessed differently. That said, all markets are interconnected so there’s certainly a connection between stock indices and currencies – In most periods when the domestic stock market index rises, the local currency tends to strengthen and vice versa.

How to Trade Indices? Trading Indices CFDs Explained

Index trading can be best described as the buying and selling of a specific stock market index. Instead of speculating on the price of a single stock, currency pair, or commodity – Trading indices enable investors to get exposure to a certain sector, market, or an entire economy. 

So, if you want to start trading indices, you need to be aware of all the methods by which you can get access to indices trading. In this article, we also explain what indices CFDs are, list the main factors that impact stock indices prices, and provide tips to start trading stock global indices. 

Key Points to Take Away

  • Stock market indices are used to monitor and measure a certain market performance. Some of the most popular indices include S&P 500, Dow Jones Industrial Average 30, NASDAQ100, FTSE100, DAX30, Vix, etc.
  • There are various ways to trade stock market indices including futures, ETFs, options, and CFDs.
  • The most popular method to trade global stock indices is through Contracts for Difference due to the high leverage and low entry barrier.

What Are Indices?

Generally speaking, most people are familiar with stock indices, even if they are not traders or have an interest in financial markets. Basically, stock indices were designed to measure the performance of a certain stock market by creating a basket of the best-performing individual stocks in an exchange and tracking the performance of these stocks. 

For example, the S&P 500 is an index that tracks the performance of the largest 500 companies listed on all US stock exchanges. The US dollar index measures the value of the US dollar versus a basket of the most traded currencies in the world. 

FYI

According to Wikipedia, there are currently 228 major stock and commodity indices in the world.

Indices Trading – How Does it Work?

Each way has its own merits and is suited for different types of traders. But because indices are simply benchmarks and there’s no value for trading different contracts (expiration date, size, etc), then the majority of traders are looking to trade cash indices that trade at spot price.  For that reason, trading index CFDs has become an extremely popular method to get exposure to these financial instruments. 

With CFD trading, investors can trade stock indices with a leverage of around 10:1 to 200:1 (SwitchMarkets enables investors to trade indices with a leverage ratio of 200:1, or a margin of just 0.5%). Furthermore, CFD brokers often enable traders to start trading with a fairly low initial investment and with a variety of trading platforms, tools, and features. 

But, regardless of the method you choose to trade indices, you need to remember that the process of trading indices is similar to trading any other financial instrument. Investors simply speculate on the price market movement of the index by analyzing the economic health of an economy or a certain market. For example, over the last years, tech stocks are booming in the United States and across the globe, and consequently, the NASDAQ 100 stock index has a YTD return of over 20% and a 1-year return of nearly 35% at the time of writing. 

How Are Stock Market Indices Calculated? 

Stock market indices are calculated in different ways – by market capitalisation, price, or a method of equal calculation. But the vast majority of stock indices are calculated and weighted according to the market cap of the index’s companies. With this method, large-cap companies have a greater impact on the index performance. For example, the S&P 500 is a market capitalisation-weighted index of 505 of the largest companies listed in the US. Apple corporation has a weighted average of 6.05, which clearly makes it a dominant stock in the index, and its performance will have a larger impact on the S&P 500 performance than small-cap companies like Western Union (0.02).

Below, you can find a table of the most traded stock indices in the world as of 2021. 

IndexCountryTracks the Performance of:Available at SwitchMarkets
S&P 500United States505 largest companies listed in the USYes
Dow Jones 30United States30 largest stocks in the USYes
NASDAQ 100 (US Tech 100)United States100 largest tech stock in the USYes
FTSE100United Kingdom100 largest companies listed in the UKYes
DAX 40Germany40 largest companies listed in GermanyYes
Nikkei 225Japan225 largest companies listed in JapanYes
Cac 40 France40 largest companies listed in FranceYes
S&P/ASX 200Australia200 largest companies listed in AustraliaNo
VIXUnited StatesMeasures the US stock markets expectation for volatility – used to measure the risk and uncertainty in the stock markets No

*Other popular stock market indices include the FTSE China a50 Index, the US Dollar Index, Ibex 35 (Spain), EuroStoxx50, Hang Seng Index, S&P/NZX 20 (New Zealand), Shanghai SE Composite, etc. 

Trading Indices vs Forex

Most of the new traders that enter the trading scene often ask which asset class is better to start with – stock indices or forex. For various reasons, most people are going straight to trading forex, which can be attributed to the fact the forex market is easier to understand and predict, and it is the most liquid market which is exactly what new traders need. 

However, in my opinion, there’s no preference for a specific market between the two. Also, there’s no reason for a trader not to take advantage and trade both markets, especially when there’s a correlation between the forex and stock markets as well as between commodities and stocks. 

Still, there are crucial things to take into consideration. First, in terms of the leverage ratio provided by brokers – you’ll be able to get higher leverage when trading forex. For example, SwitchMarkets provides a leverage ratio of up to 500:1 for forex trading and 200:1 for indices trading. That said, a high leverage ratio is not necessarily a good thing, particularly for swing and long-term traders. 

Secondly, liquidity. Beginner traders need a liquid market so they will not get stuck in a liquidity trap where there’s a market with no buyers and sellers. When we compare indices vs forex – then the forex market certainly has higher liquidity. Having said that, when trading CFDs, liquidity is not a factor as the broker ensures you get market execution at any price. Therefore, trading indices CFDs is perhaps the best option for a trader to be able to buy and sell indices. 

Finally, volatility. On this argument, it is difficult to find a decisive answer. Some say the forex market is more volatile than the stock market and some say the opposite. Nonetheless, both currency pairs and stock indices are great assets for intraday and long-term trading so there’s no reason to focus on only one market.

How to Trade Indices?

As mentioned above, a trader has several options to trade indices. One effective way to do so is by contract for difference (CFDs), which allows the user to trade with leverage and by getting access to a top-notch trading platform. To start trading index CFDs, you simply need to follow the next steps.

  1. Open an online trading account with a regulated broker that offers indices CFDs
  2. Fund your trading account. We suggest you start with the minimum deposit required by the broker. 
  3. Select the index you want to trade on and follow market news and economic data that has an impact on the chosen index
  4. Buy or short sell the index
  5. Use risk management tools such as a stop-loss order, and risk-reward ratio

Factors that Affect Stock Market Indices

Still, when trading stock indices, there are some factors affecting the stock market that you need to consider:

  • Macroeconomic news and data: News and economic data have an impact on market sentiment and normally cause changes in indices prices. These include central banks announcements, economic data (GDP, CPI, Non-Farm Payrolls, etc), economic outlook, analysts’ forecasts, etc.  
  • Changes in stock index composition: Most index providers often rebalance their indexes by removing and adding companies. In this case, investors respond to such information, and the index is affected by the change in composition (usually, the index will be positively affected by the change in an index composition). 
  • Companies’ earning results: Public traded companies are required to release their earnings reports four times a year, a phenomenon known as the earrings season. During this time, the stock market is extremely volatile and the reports of individual companies have a direct impact on indices price movements. 
  • Economic and political events: Factors like political instability, war conflicts, elections, and budget disputes can significantly affect economic growth and stock prices. 
  • Inflation and interest rates: There’s a negative correlation between inflation and stock prices. When inflation rises above the target range (typically between 1-3), central banks are forced to increase interest rates, which negatively affect stock price and stock market indices. 

Tips for Trading a Stock Index

Generally, there are many different ways to trade indices. Some are more conventional while others are unique and come in a way of thinking out of the box. For example, while I was working in a dealing room, one trader found a strong correlation between the NASDAQ 100 and DAX30. It worked for him. 

Another trader has had a very unique strategy that focuses on buying or selling an index when there’s a daily change of above or below 2.5%. In this case, for example, if the NASDAQ100 rises above 2.5% during a trading day, the trader goes with the trend and buys the index and vice versa. 

What’s more, some traders see the crude oil market as an early indicator of the stock markets. According to this strategy, changes in oil prices are a way to predict future price movements of stock indices

All in all, you can find many trading strategies to trade stock indices. In any case, it is best to establish a trading style that combines fundamental and technical analysis and understand the main factors that drive stock prices.  

Fun Fact

The Dow Jones Transportation Index was the first stock index published by Charles Dow in 1884. 

Final Thoughts

All things considered, trading indices is certainly a great way to get exposure to stock markets around the world. It is probably not the easiest market to trade due to the complexity of stock markets, however, following stock indices will help you find lots of trading opportunities.  Additionally, there are many benefits to trading indices. It’s easy to get information from news websites about a certain index, you can trade with leverage, and you have the ability to take long and short positions. 

To get started, you need to decide on the way you want to get access to index trading. This could be done either with a share trading brokerage firm or a CFD broker. If you are a beginner, you can open a free demo account to get access to the markets and practice indices trading with virtual money. 

FAQs

Is it possible to invest directly in a stock index?

In essence, you cannot buy an index directly from the exchange. The reason for that is that an index is not a security but an indicator that tracks the performance of a certain market. However, there’s a way to do that by buying the exact companies listed in an index, a strategy called indexing. This could be normally done on indices that track a small number of stocks rather than indices like the S&P 500, or Nikkei 225.  

How to trade world major indices on MT4?

To be able to trade major indices on MetaTrader4, you obviously need to find an online brokerage firm that gives users access to this platform. Here, at SwitchMarkets, we offer traders to trade a range of 8 stock indices with a leverage ratio of 200:1 on MT4. 

Which stock index is the most volatile?

In the US, two of the most volatile stock market indices are the NASDAQ 100 and Russell 2000 index. In Europe, the DAX30 is known as one of the most volatile indices in the world. 

What are index futures?

Stock index futures are derivative contracts that trade on various futures exchanges such as the Chicago Mercantile Exchange. These futures are cash-settled and allow investors to speculate on the price movement of different indices.