Introducing Brokers
Question: Does your firm have Introducing Brokers (IBs)?
Why this Matters:
Market makers often pay other firms to bring them business. This is not at all unusual, rewarding others for referring your firm business is a common practice in many industries. In FX, however, it results in a massive hidden cost to you, the trader. The biggest portion of the market maker's profit comes from the bid-ask spread. Some firms are able to make only a portion of a pip per trade. Others may aim to make a full pip, two pips, or even several pips.
If a firm introduces a client to your broker, your broker must compensate that firm. Normally, brokers give up a portion of the spread--a so-called rebate--to the IBs. For very large or important IBs, the firm might give up as much as a full pip. This means that if you are not getting additional, and very valuable, services from an IB, then your broker is making a full pip more than they otherwise would.
Think of it: every trader with a modicum of sense realizes the importance of cost to his bottom line. Why pay 3 pips on EUR/USD if you can get it for 2? Most fail to realize that the biggest and fastest way to reduce spreads substantially (by a full pip or more) is simply to trade with a firm that doesn't pay IBs to bring it business.