The four roles
Introducing broker (IB)
Solicits clients, gives education and support, and may pass on orders. Clients open accounts with the carrying broker, often through the IB. The IB is paid by commission, rebates or a share of revenue. More in what is an introducing broker.
Executing broker
Receives orders and executes them on an exchange or with liquidity providers. It is responsible for getting the order filled, and may or may not also clear it.
Clearing broker
Settles trades, holds client money and positions, calculates margin, keeps account records and sends statements. In securities, a clearing firm is a member of the clearing house and takes on settlement risk.
Futures commission merchant (FCM)
The US term for a firm that accepts customer orders for futures and options on futures and accepts money to margin them. FCMs must segregate customer funds, meet much higher capital requirements and are registered with the CFTC and members of the NFA.
Side by side
| Introducing broker | Executing broker | Clearing broker / FCM | |
|---|---|---|---|
| Main job | Find and serve clients | Fill orders | Settle trades, hold funds, set margin |
| Holds client money | No | Sometimes | Yes |
| Capital required | Low (US independent IB: from $45,000; guaranteed IB: none of its own) | Varies | High |
| Client statements | No | Sometimes | Yes |
| Paid by | The carrying broker | Commissions or spread | Commissions, fees, interest |
How a trade flows
- The IB introduces the client, who opens an account with the clearing broker or FCM.
- The client deposits money directly with that broker, in their own name.
- The client places an order, on the broker's platform or sometimes through the IB.
- The executing broker fills the order.
- The clearing broker settles the trade, updates the account and margin and sends the statement.
- The carrying broker credits the IB for the business.
Introducing broker-dealers and other markets
- Futures: the roles are usually separate. IBs introduce clients to an FCM, which clears through an exchange clearing house.
- Stocks (US): an introducing broker-dealer works with a clearing firm under a clearing agreement, either fully disclosed (the clearing firm knows each client) or omnibus (one combined account).
- Retail forex and CFDs: one regulated broker usually executes, carries the accounts and holds client money. The IB's partner is that single broker.
Why the difference matters
- For clients: your money should only ever go to the regulated carrying broker. Check its licence and how it protects client funds. See how to check a broker's regulation.
- For IBs: because you don't hold client money, your capital and compliance burden is lighter, but you still need to follow registration and marketing rules where they apply.
- For brokers: IBs extend your reach, while you keep custody, execution and the regulatory responsibility for client money.
Frequently asked questions
Is an FCM a clearing broker?
Many are. An FCM accepts customer money for futures and either clears trades itself as a clearing member or uses another clearing FCM.
Can an introducing broker hold client funds?
No. That is the defining line: an IB that accepts client money to margin trades would need to be registered as a carrying broker, such as an FCM.
Who do I complain to if something goes wrong?
Start with the broker that holds your account, then its regulator. For US futures and forex, the NFA also offers arbitration.
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