Introducing Broker vs Affiliate Broker: Choose The Right Business Model

The spectrum of financial services that exist next to brokerage keeps broadening. The introduction of the Internet and digital platforms made it easier for new startups and service providers to establish innovative solutions for brokers and trading firms.

These entities facilitate creating and monetising a business without directly offering brokerage services. Introducing brokers and affiliates are common examples, which focus on specific target markets and provide exceptional intermediary services.

Let’s explain the difference and what model suits you more, introducing broker vs affiliate programs.

Introducing Broker vs Affiliate Brokers: Key Role for Brokers

IBs and affiliates are essential for brokerage firms. They help reduce the marketing and promotion costs and shift the burden to a specialised entity that undertakes and oversees these operations in exchange for a return.

This way, brokers can focus on core financial services and leave client acquisition, marketing strategies and lead generation to affiliate partners or IBs.

The brokerage affiliate industry is thriving and is expected to grow at an 11.5% CAGR between 2024 and 2032. The research concludes these predictions after the market size jumped from 8.4 billion in 2022 to 9.4 billion in 2023 and is projected to reach over 25 billion by 2032.

On the other hand, the introducing broker model urges stability and endurance, as 55% of registered IBs have been operating for 20 years or more. 

Understanding Introducing Broker

Introducing brokers act as intermediaries between brokers and traders. They refer clients to the brokerage platform after performing various marketing and promotional activities.

They utilise their broad network and knowledge of the target market to secure smooth entry and registration at the broker’s platform. IBs manage accounts of newly signed-up users, including financial activities, customer retention, compliance, education and more.

Brokers offer multiple introducing broker programs to delegate these activities and compensate IBs per converted lead or other incentives.

Benefits and Challenges

Pros

• Low overheads and starting costs compared to brokerage firms.
• Flexibility in charging your fees, working hours and operations.
• Utilising professional networks for long-term business success.
• The ability to earn significant commissions on wealthy clients.

Cons

• Reliance on brokers and trading service industry conditions.
• Ongoing compliance changes with the CFTC regulations.
• Unstable earnings since the income is commission-based.
• Complications of client conversion and retention.

Understanding Affiliate Programs

An affiliate is an independent entity promoting the brokerage platform. It could be an individual like an influencer or a renowned investor or an institution like media agencies and PR management companies.

Affiliates employ sophisticated marketing techniques to acquire potential customers and convert them into traders at the broker’s account. Unlike IBs, they do not work closely with the broker and are only tied through a contractual relationship.

In exchange, a broker affiliate earns commissions on converted users’ activities, trading volumes, cost-per-lead, cost-per-acquisition and more.

Benefits and Challenges

Pros

• Low entry barriers with less require capital and regulatory laws.
• The freedom to set own fees and scale across many brokers.
• Most brokers offer various customised affiliate programs.
• The ability to offer multiple services like SEO optimisation, Google ad campaigns, social media marketing and more.

Cons

• High competition as the media and marketing industry is saturated.
• Unstable income and reliability on brokerage performance.
• There is a risk of rising overheads if brokers fail to retain clients.
• Challenging marketing regulatory frameworks and restrictions.

Introducing Brokers Responsibilities

After defining introducing brokers and their benefits, let’s explain how they work and their responsibilities. It is a popular term at brokerage firms, which offer various packages and programs with different projected output, compensation and duties. Here’s how IBs work.

Onboarding New Clients

After deploying various marketing activities, clients sign up for the introducing broker platform, which conducts KYC and verifies users’ identities and investing goals.

They also evaluate the prospective clients’ knowledge, experience, and trading budget, as well as understand their goal for better account classification. These leads are then transferred to the brokerage platform, which helps fulfil their trading objectives in the financial market.

Managing Traders’ Accounts

IBs are responsible for the converted clients even after transferring them to the broker. As such, they take care of their complaints, inquiries, and other requests.

They may conduct periodic audits to ensure the trader is being served as expected and that the broker is delivering financial services adequately. IBs can oversee the clients’ accounts to minimise any suspicious activities and maximise customer satisfaction.

Educating and Engaging Clients

Introducing brokers educate and engage their clients through webinars, research groups and other activities that ensure ongoing support for traders after conversion.

IBs may offer continuous educational resources, assist investors, advise on trading strategies, conduct 1-on-1 coaching or explain new concepts.

Generating Income

Introducing brokers earn income from different instruments. They charge fixed amounts for every onboarded client, which motivates them to convert as many clients as possible. At the same time, they set ongoing commissions for trading volumes, providing IBs with a continuous income from affluent and long-term investors.

Affiliate Brokers Responsibilities

Affiliates are independent intermediaries that scale their activities across multiple businesses. They can diversify their operations between brokerages, software development, banks and other non-financial activities.

Many Internet personalities, famous people and influencers act as affiliates to promote various products and services, including financial services. Here’s how broker affiliates work.

Creating Communities

Firstly, they create a significant followership base that shares similar interests or is influenced by their activities. Affiliates also build credibility and trust with their fans, which is the first line of possible buyers when promoting products or services.

Individual or institutional affiliates scale their presence across multiple channels to connect with their audience and remain effective as much as possible.

Generating Lead 

Brokerage firms offer multiple affiliate opportunities with various payouts and bonuses, motivating individuals and institutions to promote their trading services and activities.

The affiliate deploys various marketing activities, whether social media marketing, email marketing, written blogs or viral content. Interested buyers click on referral links, which generate leads for the brokers.

Brokerage firms filter these leads, identify possible long and short-term clients and categorise them based on knowledge, skills and goals.

Educating and Promoting

In order to secure quality leads that would invest significantly in the long run, affiliates provide educational support, such as platform onboarding, financial assistance, investing advisory and more.

Affiliate partners can scale their promotional activities on different channels using techniques that suit every audience. This enables them to maximise their potential earnings.

Generating Income

This approach is compensated per performance. The more promotion and advertising affiliates produce, the higher their potential revenue. They follow different payout schemes, such as cost per acquisition or revenue sharing.

Introducing Broker vs Affiliate Broker: Which One is Better?

There is no fixed answer to which model is better. It depends on your interests, operations, and business type. 

Some of the best introducing broker programs suit financial advisory firms and insurance companies, who may suggest long-term trading for their clients and, therefore, introduce them to a specific broker platform.

On the other hand, affiliate partnerships could be a better option for financial educational platforms, digital marketing companies and stock screeners. These entities provide finance-related content and can refer users to a brokerage.

The difference between introducing broker and affiliate broker is that IBs focus on long-term professional relations with their audience, while affiliating relies on virality and affects as many customers as possible.

How to Become an Introducing Broker?

Becoming a successful Forex introducing broker is challenging because there are several regulatory challenges, relationship-building activities and investments that you need to make along the way. Here’s how you can start.

Familiarise Yourself with Legal Requirements

Some regions, such as the United States, Australia, and South Africa, require IB certification. However, if you are launching your IB platform in Europe, you will most likely not be required to obtain such a license, but you must check out for other registration and compliance requirements.

Create a dedicated team to oversee and manage the legal aspects, such as reporting, internal auditing and bank statement disclosures.

Find a Suitable Brokerage Platform

After establishing your IB business, look for platforms offering introducing broker programs. It is essential to inspect the broker’s legitimacy and verify its reputation. If you associate with an illegal broker or engage in fraudulent activities, you will damage your brand and might not receive your compensation as agreed.

Check the broker’s offering and review the IB plans, including payment schemes, control level and duties. Finding and customising a suitable program is crucial for business longevity.

Create and Spread Referal Links

Set a marketing strategy and agree with the broker on the compensation model. Then, build a network of unique links to register new clients and design your onboarding method.

Perform various marketing activities to convert your clients into potential traders at the partner brokerage firm.

Build Sustainable Relationships

Insurance companies, retirement financial management firms and trading software are thriving introducing brokers with an in-house database of customers. Therefore, it is crucial to focus on sustainable relations with your users to ensure long-term income streams for your business.

How to Setup Your Affiliate Program?

Another key difference between an introducing and affiliate broker is that affiliation focuses more on core marketing practices and scaling them instead of focusing on quality leads and building a professional network. Here’s how you can start.

Determine Your Target Market

Start by identifying your audience and market, whether you are targeting professional investors, new traders, users interested in having financial freedom, or creating a new lifestyle. Determining these channels is essential to creating the right marketing resources.

Execute your marketing strategy. You can promote by doing viral videos for social media, educating the public and offering the chance to start trading, producing optimised written content with referral links, and more.

Find The Right Brokerage Partner

Search for a brokerage platform looking for partnerships through affiliation and review their offerings. Ensure you associate your brand with a reliable and reputable business. This is a crucial aspect because it highly affects your online presence and influence.

Build an Affiliate Link Network

Determine your payment schemes and embed them into your marketing channels across your videos, blogs and social media posts. Use a tracking platform to monitor your performance and the number of clicks on referral links to assess your results.

Some brokers offer access to tracking capabilities. This can help reduce your costs and benefit from a centralised technology.

Establish and Boost Online Presence

Succeeding as an affiliate is all about online presence and influence. Grow an interested community, connect with your audience regularly and build trust to promote service effectively.

If you own a blog or an online affiliate company, optimise your SEO metrics to boost your appearance on search engines and create valuable content that resonates with your followers.

Affiliate Brokers vs Introducing Brokers: Income Generation Model

Monetisation for affiliates and IBs can look similar as both earn commissions in exchange for referring clients to brokers. However, there are some prime differences between the two. Let’s explain.

Introducing Brokers

Revenue sharing is the primary income source for CFDs introducing brokers, who charge a percentage of the trading volume of every converted client. The rate usually ranges from 30% to 50% of the investor’s revenue. Larger intermediaries can negotiate higher percentages or agree on increments when the lead passes several term or volume thresholds.

Some brokers pay a fixed amount for every new client, besides additional ongoing commissions.

Affiliate Partners

These intermediaries utilise a more complex commission system, including cost-per-acquisition, cost-per-lead, and cost-per-install. Let’s explain them in order of importance and payment amount.

• CPA: one-time compensation for every referred customer registered at the broker’s platform.
• CPL: payouts for extracting basic contact details (name, phone number, email address).
• CPI: commissions paid for app downloads or referral link interaction.

Other payment schemes include revenue sharing, a small percentage that affiliates earn from converted client trades.

Conclusion

Introducing brokers and affiliates are third-party entities that play a major role in promoting a brokerage’s services, acting as marketing tools.

IBs focus on building long-term relationships as a business with its clients, such as insurance companies and financial firms. They refer a broker to provide investment services.

Affiliates focus on online presence and influencing their audiences to promote the broker’s services. They help convert leads through referral links and optimise marketing activities to increase awareness.

Establishing an introducing broker vs affiliate agency depends on your preferred business model, mode of operation and target market.