Definition: An introducing broker (IB) is a commodity broker who solicits orders for the purchase or sale of any commodity or future on an exchange. The IB does not accept any money, securities, or property to margin, guarantee, or secure any trades or contracts that result therefrom. The IB and FCM will have a close relationship.
All money for trading futures contract are held by a futures commission merchant (FCM). All trades are executed by the FCM. In essense, the IB has a direct relationship with the client and the FCM handles all trading operations.
Also Known As: IB, commodity broker
Examples:
You can open an account with an IB to trade futures. Your account paperwork and money will be sent to the FCM that handles the floor operations for the IB. An IB uses the services of an FCM, because it is unreasonable to think that every commodity brokerage firm would have enough resources and traders on the exchange floors to execute trades for their clients.
So, when you call your broker to place a futures trade, he will call the trading floor at his FCM to execute the trades. An IB, in essence, acts as a middleman between you and the FCM. Trading through an IB is the most common way for you to trade futures.
