Why Clients Don't Pay More Money When They Go through an IB.
Introducing brokers are compensated by the brokerage or clearing firm they work with. Clients do not pay higher commissions or have higher spreads because they go through an IB instead of directly through to the clearing firm. In fact, if a client allows the IB to "introduce" him to the clearing firm, the client can become eligible to receive special services that only the IB can provide; for example, advanced training, managed account services, etc.
How Can the Clearing Firm Compensate the IB without Making the Client Pay for It?
Good question. The clearing firm "SHARES" part of the spread with the introducing broker while giving the client access to the same tight spreads that are available to all other clients of the clearing firm. The clearing firm depends on their IBs for a major part of their business. Both the clearing firm and the introducer get compensated from the spreads that exist between the bid and ask prices for the given currency pairs. IBs that also introduce investors who want their accounts managed can also receive a portion of the money manager's profit or performance fee. Read more about managed forex IB's.
IB Compensation Diagram (for Retail or Do-it-Yourself Traders)
IB Compensation Diagram for Managed Accounts
The above diagrams demonstrate how a forex IB is compensated. Notice that the managed IBs have an additional source of revenue from the portfolio manager's profits (if any). Since the manager's compensation is based on a percentage of the gains generated for the customer, the manager shares a portion of his "profit incentive fee" with the IB that refers the customer. For more information on getting compensated by introducing high net worth customers to FX money managers, please visit the managed IB section.