Welcome to Blog number 1 of WTH aka What The Hedge; a series designed to identify, entertain, and explain commonly used grain marketing terms and acronyms. We thought there was no better place to start this blog series than to define an IB or an Introducing Broker.
What is an IB?
The full NFA definition of an IB can be found here. But the most simplistic definition is; an individual or organization that solicits or accepts orders to buy or sell futures and options.
There are two types of IBs; GIBs and IIBs
- GIB – Guaranteed Introducing Broker
- IIB – Independent Introducing Broker
Farmers Risk is a GIB.
GIB vs. IIB
GIBs are introducing brokers that enter into a guarantee agreement with an FCM (Futures Commission Merchant i.e .StoneX Financial Inc., Marex, RJO, etc). In this arrangement, the broker agrees to exclusively work with one FCM. In exchange, the FCM shares the broker’s liability under the Commodity Exchange Act and helps the IB meet compliance requirements.
Farmers Risk is a GIB whose FCM is StoneX Financial Inc..
IIBs are introducing brokers that are independent and are not required to route all trades through one FCM. Since they’re not tied to a single FCM they don’t receive an FCMs assistance regarding liability or compliance.
The below chart shows where an IB sits in the process of clearing a trade.
Over the next few weeks, we’ll go over the other parties involved in the trading process.
CFTC Definition of an Introducing Broker
CFTC Definition of a Guaranteed Introducing Broker
This material should be construed as market commentary, merely observing economic, political and/or market conditions, and not intended to refer to any particular trading strategy, promotional element or quality of service provided by Farmers Rick Inc. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by Farmers Risk Inc. The trading of derivatives such as futures and options involves substantial risk of loss and you should fully understand those risks prior to trading. Farmers Risk Inc. is not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy.