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Choosing a Broker/Dealer is MORE Important Than You Think!

Uncategorized Mar 14, 2022


In the ever changing landscape of investing, trading, money management and advisory services, choosing a Broker/Dealer is more important than you think! People don't realize how much power they have as investors or traders when they bring capital to the table. Investing, trading and money management is a big business with big players all biting to get your capital in the door and keep you there forever. They're all offering you products and services, some better than others, and some you should always stay away from! In this blog article I'm going to show you a bunch of different options that you have and why it's so important to be educated before you make a decision.

What is a Broker/Dealer?

Let's first talk about what a Broker/Dealer actually is. In the world of finance and banking, when you want to invest your money in different products or services, you're going to need a broker/dealer to service you and provide that pathway. This is synonymous across different industries.

When you go to purchase real estate for example, you're going to work with a Broker/Dealer that specializes in real estate, residential or possible commercial. When you want to buy shares of a publicly traded company, you will also be working with a Broker/Dealer that specializes in equities. Maybe you have a business where you're manufacturing or producing some sort of commodity, and you have cash market positions, again you could work with a Broker/Dealer that specializes in commodities where you could buy, sell or even hedge your positions.

There are many options! There is a lot of overlap in these services from large banks and as you will see, it's important to understand exactly what options you have so you can make the best decisions for your financial future.

Nothing here is trading, financial or investment advice. I highly recommend working with licensed and vetted lawyers, CPAs and registered broker/dealers before making any decisions.

Prime Brokers

Lets first talk about Prime Brokers. What is a Prime Broker? A Prime Broker is a bunch of bundled services available from large banks and institutions that are made available to hedge funds and other individuals who are managing capital for individuals, families and institutions.

Why is it important to be aware of Prime Brokers? If you're beginning an investing or trading journey and your ultimate goal is to manage capital for clients, Prime Brokers might become an integral part of your business one day so it's extremely important to know what they are and what services they can offer you.

Here is a list of some major Prime Brokers:

Check out Investopedia's definition and full explanation for prime brokers.

Retail Brokers

Next we have Retail Brokers. These are often services provided by the same large banks that provide prime broker services but are geared toward the retail market and retail trader or investor.

There are also Retail Brokers that don't fall under the umbrella of a large banks but are registered Broker/Dealers and specialize in servicing the retail market.

This is where most people will start their investing or trading journey. Which is why it's important to review and understand all of your options.

What's great is that most of these Retail Brokers offer services and software that give an incredible amount of power to the individual investor when starting out.

Here is a list of Retail Brokers you should look at when figuring out what best suits your needs.

Now I am sure there are some I missed, but this is most of the large Retail Brokers. I am in no way affiliated with any of them and I am not recommending one over the other.

For my personal account and what I use to teach students and clients, I prefer to use TDAmeritrades ThinkOrSwim platform for its ease of use and highly customizable assets.

Again this is NOT a recommendation or an advertisement for affiliate products.

Introducing Brokers (IB)

Now here's where things can start to get a little complicated for new investors or traders. There are other entities that can represent you and help you with your trading and investments, specifically on the commodities, futures and forex side. One of these are known as Introducing Brokers (IB).

Introducing Brokers (IB) act as a middleman or intermediary between the client and a Futures Commission Merchant (FCM). Introducing Brokers (IB) delegate trade execution and floor services to their Futures Commission Merchants (FCM). Introducing Brokers are usually guaranteed by an FCM or are independent.

What's important to understand is that Introducing Brokers (IB) do not hold or accept money in their name, the money and accounts are always held at a Futures Commission Merchant (FCM).

Just like a Stock Broker advises clients on trading stocks, an Introducing Broker (IB) advises clients on trading futures, commodities and forex. Stock Brokers are registered with the Securities and Exchange Commission (SEC) and governed by the Financial Industry Regulatory Authority (FINRA), while Introducing Brokers (IB) are governed by the National Futures Association (NFA), and registered with the Commodity Futures Trading Commission (CFTC).

The reason why this is confusing and complex, is because most Prime Brokers and Retail Brokers are also Introducing Brokers (IB). The reason why is because these large banks and institutions have many different licenses that allow them to offer many different products. This is very important to know and understand as you become more experienced and progress through your financial journey.


I really wanted to give some quick, right to the point information regarding Broker/Dealers and why it's so important to educate yourself before making any financial decisions.

We covered the basic definition of what Broker/Dealers are, and we discovered that there are several different types of Broker/Dealers including Prime Brokers, Retail Brokers and Introducing Brokers (IB).

You also learned that the Securities and Exchange Commission (SEC)Financial Industry Regulatory Authority (FINRA)National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC), are some of the regulating bodies that have jurisdiction over these Broker/Dealers.

Now there are several other extremely important structures that I did not cover in this blog article. I have decided to wait and cover them in future articles.

I know that if you take your time and educate yourself on ALL of your options before making any financial decisions, you will come out a much better investor and trader in the long run.

I hope that this article has given you some valuable insight as to why choosing a Broker/Dealer is more important than you think! Until next time! :)

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