Introducing Broker – what is behind it and what are the advantages and disadvantages?
- Von Thomas
Have you ever heard the term Introducing Broker? Maybe you are even a client of an Introducing Broker, but you don’t know it?
We’ll give you the all-clear right away: an Introducing Broker is something quite normal and this business model has many advantages if it adheres to certain rules. In this article you will learn what these rules are, what the tasks of an Introducing Broker are and what the role of an Operating Broker is in this context.
And at the end of this article you can benefit from an interesting offer. But everything in order. First of all, they need to understand how this business model works.
Introducing Broker? Operating Broker? Where are the differences?
An Introducing Broker acts as an intermediary by matching clients (investors, traders) seeking access to financial markets with a counterparty, the operating broker.
So what exactly does an Introducing Broker do?
To put it simply, introducing brokers generally take care of marketing and sales and thus attract customers. The execution of trades and thus the entire settlement of stock exchange transactions is outsourced to the operating broker, which provides its technology but remains in the background.
The Introducing Broker and the Operating Broker divide the fees and commissions paid by a customer for stock exchange trading between themselves in accordance with an agreement made in advance.
The operating broker provides the trading platforms on which customers can place trades online and is also responsible for customer account management. However, for the majority of operating brokers, it would be financially impossible to open offices around the world to attract clients and service them.
This is where the Introducing Broker comes in, as they usually have local roots, know the domestic market well and use their network to attract new clients.
Why not become a customer directly with the operating broker?
In most cases, this does not happen because the customer attaches importance to excellent and regional support. And for the reasons mentioned later, the operational broker cannot always provide this to the fullest satisfaction.
Namely, because he is too big to reach every corner of the world. Because he does not know the regional conditions and customs. Because he cannot offer customer service in the local language. And much more.
Which Introducing Brokers are available?
Note: we focus on trading stocks at thomasvittnertrading.com. Our main focus is the trading of US stocks. This has professional reasons and is explained in detail in many places of our content. For this reason we concentrate in the following listing of the most well-known providers in the D-A-CH area on such Introducing Brokers, which offer the trade of US shares at US stock exchanges.
The list is now in alphabetical order and does not claim to be exhaustive
- Banx Broker
- Brokerpoint
- Cap Trader
- Lynx
- MEXEM
Which operating broker is behind these providers?
All these mentioned providers use the US American broker Interactive Brokers as their operational partner broker. It is a US multinational brokerage firm with corporate headquarters in Greenwich, Connecticut and international offices in Switzerland, Canada, Hong Kong, the United Kingdom, Australia, Japan, Hungary, Russia, India, China, Luxembourg, Ireland, Singapore and Estonia.
The company was founded in 1978 by Thomas Peterffy in New York City and today operates the largest trading platform in the United States. Interactive Brokers is listed and trades on the New York Stock Exchange under the ticker symbol IBRK.
As you can see, Interactive Brokers operates all over the globe and therefore cannot possibly know all regional specifics or be present in all countries.
The trading platform
Interactive Brokers’ flagship product is the Trader Workstation (TWS). TWS is a trading platform that allows customers to trade a wide variety of products on all relevant world exchanges. Of course, Interactive Brokers keeps up with the times and today offers mobile applications of its platform as well as web-based solutions in addition to its desktop solution TWS.
Advantages of cooperation between Introducing Broker and the operating broker
The agreement between the Introducing Broker and the Operating Broker mainly allows for specialization, where the Introducing Broker focuses on the client, while the Operating Broker focuses on trading and client finances.
One could also say that the Introducing Broker is the sales force of the operating broker, which provides the back office. Only in this case, the back office and sales are divided between two companies, which in turn have a contract with each other that regulates rights and obligations.
Advantages of the Introducing Broker from the customer's point of view
For the customer, the advantages of Introducing Brokers are obvious. Short distances, excellent customer service in their own language, offices on site and regional specialization with regard to location-specific features. Introducing brokers can also provide better tax support.
Many Introducing Brokers also offer excellent training opportunities such as learning webinars, own asset management or special unique product solutions that an operating broker could never offer in this fine granulation.
Disadvantages of the Introducing Broker for the client
Customers are smarter today than they were 10 or 20 years ago. The Internet has revolutionized the flow of information. Today, they carry all the world’s knowledge around with them in their pockets on their smartphones. All they have to do is search for it. And the Introducing Brokers know that too.
These brokers know very well that most of their customers are aware of the fact that they are an Introducing Broker and leave the background processing to someone else. And most of the customers even know the operating broker behind it and could also become a customer there directly. Therefore, all introducing brokers are well advised to act absolutely outstanding especially in customer service and highly professional in support in general. If there wasn’t one big problem….
The disadvantages are to be sought elsewhere and can be found primarily in the fees charged to clients for trading. Namely, many introducing brokers charge a premium over the fees that an operating broker offers directly. However, some clients are happy to pay this surcharge as long as they get a better service and customized special products (fractional shares, asset management, etc.) in return.
However, not all customers voluntarily pay a little more and the problem primarily concerns the trader. In other words, people who trade particularly frequently on the stock exchange. And that is what we are talking about now.
Trading and fees with introducing brokers
Wenn ein Anleger bei einem Broker pro Jahr 5 mal ein paar Aktien kauft, spielt ein Unterschied bei den Gebühren von 1, 2 oder 5 Euro pro Order keine Rolle. Wenn ein Trader aber nun im Durchschnitt 50 oder 100 Trades pro Monat macht, ein Wert, der durchaus erreicht wird und sogar noch konservativ geschätzt wurde, dann spielt jeder Cent, den der Kunde mehr an Gebühren zahlt, eine große Rolle.
Wenn Sie als Trader somit nur 1 Euro mehr pro Trade bezahlen, muss man kein Mathe Genie sein um die Ersparnis zu errechnen. Pro Jahr sind das dann mindestens 600 Euro Mehrkosten.
Je nach Staffelung und Art der sonstigen Gebühren können zu hohe Abgaben sogar dazu führen, dass ein Trader nicht nur etwas weniger Netto Rendite erwirtschaftet. Es kann sogar so weit gehen, dass ein Trading System, das eigentlich sehr gut ist, Verluste produziert. Nur wegen der zu hohen Gebühren.
Und somit nimmt man als Trader oft schlechteren Service, längere Wege und keinen Ansprechpartner in der Muttersprache in Kauf, damit man sein Trading Business erfolgreich betreiben kann. Aus diesem Grund – die Kosten – sind die meisten Introducing Broker für Trader nicht oder nur bedingt geeignet.
Weil sie zu teuer sind und sich das Traden dann nicht rechnet. Aber nicht auf alle Introducing Broker trifft diese Aussage zu. Es gibt nämlich eine einzige Ausnahme, und über diese Ausnahme sprechen wir jetzt.
mexem.com - trade as cheap as at Interactive Brokers?
We are contacted about once a month by brokers who want to cooperate with us. Mostly these are Forex or Crypto brokers who want to conquer the German market with our help. However, since we have nothing to do with Forex and Crypto’s, we always decline these offers with thanks.
Only a few months ago there was again such a request from a broker: MEXEM.
Who is MEXEM?
Mexem in its current form was founded in 2018 by a group of experienced traders and investors and enjoys a rapidly growing number of active clients in Europe.
MEXEM is a so-called Introducing Broker of Interactive Brokers.
The company started within Europe initially in the Benelux countries. This was followed by branches in Italy and South Africa. Since 2022 Mexem is also active in the German-speaking area and has branches in Vienna, Frankfurt and Zurich. Mexem is an Introducing Broker of Interactive Brokers and can look back on an experience of more than 10 years regarding this cooperation.
Translated with DeepL
Is MEXEM safe?
MEXEM is a European regulated investment firm supervised by Cysec and registered with the Dutch Financial Supervisory Authority (AFM) and the Belgian Financial Services and Markets Authority (FSMA).
MEXEM Fees
When we checked the fees of MEXEM, we found out that this broker acts as an Introducing Broker of Interactive Brokers and – as written above – charges a fee surcharge to Interactive Brokers. Business as usual in terms of introducing brokerage. And thus they were not an interesting partner for us. For now.
The following two lines show the difference between MEXEM US equities normal fees and Interactive Brokers:
US shares at Interactive Brokers: Basic fee USD 1 – cost per share USD 0.005
US shares at MEXEM: Basic fee USD 2.5 – cost per share USD 0.005
With this, we had to politely but firmly decline the offer. After all, we could not in all conscience suggest to our clients a broker that was more expensive than Interactive Brokers. The situation was aggravated by the fact that our customers are all traders who trade particularly frequently. The high fees would have an even more negative effect on our customers.
MEXEM improves fees - exclusively for clients of thomasvittnertrading.com
In the meantime, MEXEM had noticed that we know our business. Because we explained to the management that our clients mainly work with algorithms (backtesting) and trade particularly frequently. And MEXEM had also understood that our clients are all advanced traders.
Now, if MEXEM wanted to cooperate with us and win you, dear reader, as a new MEXEM client, they had to come up with something. And that’s what they did – exclusively for thomasvittner.com clients.
The MEXEM special conditions on thomasvittnertrading.com
Thus, clients coming to MEXEM through thomasvittnertrading.com should be offered a real incentive to transfer their account or, if they do not have an account with Interactive Brokers yet, to open an entirely new account with MEXEM (using Interactive Brokers’ technology as an operational broker).
Therefore, our customers were granted the same fees that they would pay at Interactive Brokers. Something like this has never happened before, but it shows the appreciation towards us and our clients that MEXEM shows them and us here.
MEXEM is Introducing Broker of Interactive Brokers. Practically, the service of MEXEM is even better than that of Interactive Brokers at the same fees, because in addition to exactly the same technology, they offer a German customer service and have numerous other services “in Petto”, which they are looking for in vain at Interactive Brokers. MEXEM can also support you better in terms of taxes, because they know D-A-CH better than Interactive Brokers.
We are so convinced of this offer that we ourselves have already transferred our account from Interactive Brokers to MEXEM.
Conclusion
You won’t find this price/performance ratio anywhere else in the German-speaking world except on thomasvittner.com. This is an offer you don’t have to think about for a long time. You will find all details of this offer under the following link and you can register there now. Get these conditions now.
