What is an Alternative Investment Broker?
In today’s world, brokers are used in almost every major industry. Whether you’re buying a new shirt or a car, the fact is, a broker made that product available to you. Given their importance to the supply chain, and their effect on the alternative investment markets, we thought we’d expand on the topic of “brokerage” .
In this article, we’ll define the term “broker”, explaining its relation you and the alternative investment markets. As you’ll see, brokers are critical to a company’s success or failure. In fact, without brokers, companies would shut down and our economy would fall apart. Ask yourself, could “brokers” really be the key to the global economy? Well, first things first, let’s define the concept of “brokerage” and its place within the supply chain.
By definition, a “broker” is an individual who creates a business relationship, connecting the buyer and seller of a product. Since this is VERY important to both the buyer AND seller, the broker earns a commission for creating and maintaining this relationship. For example, a real estate broker earns a predefined commission for connecting a buyer with a seller. Simple enough, isn’t it? Well, you can apply this process to every product sold today. One way or another, brokers are always the key to the distribution process. Now that you understand the concept of brokerage, let’s see how brokers fit into the alternative investment markets.
Types of Alternative Investment Brokers
1. Forex Introducing Broker (“IB”): As a managed FX broker, your commission is based on profit-sharing agreements, the number of trades (“round turns”), or “rebates”. If you’re paid by the trade, you should review the strategy of the managed FX trader, focusing on how many round turns they do. Most FX traders have a strategy which aims to raise capital, placing as many trades as possible without “churning”. Many of the successful FX brokers make 1M+ per month, maintaining a client book of 50M+. Currently, you mus get a Series 3 License, which allows you to then join the National Futures Association (NFA). If you want to broker managed forex in the USA, unfortunately, these are the requirements. If you’re brokering offshore FX deals, the laws protect you if you’re not soliciting investors in the USA. The only other option is brokering forex unlicensed is through a PPM structure. This allows you work in forex without the license, since PPM structures are exempt from registration.
2. Private Investment Broker: When you’re a private investment broker, your commission is based upon the type of transaction. Just like any other investment, you find the opportunity and introduce an investor. After doing so, you can then create a Joint Venture (“JV”) agreement to secure your financial interests as a broker. Even though there are several types of private investments, private placement has become the market of choice for most brokers. Despite the fact that PPP deals are hard to close, brokers have flooded the market with fraudulent offers. To add to this growing problem, as a private placement broker, there are NO licensing requirements. Even though that may sound like good news, in all reality, it’s lead to a market FULL of inexperience, misrepresentation and fraud.
3. Managed Futures Broker: If you’re a managed futures broker, your commission is based on profit-sharing agreements or the number the trades placed. As we mentioned before, if you’re paid by the trade, look for a managed futures firm with a ton of round turns. By raising equity for a firm that places a lot of trades, you’ll earn far more in commission. If you’re a successful managed futures broker, your commission is almost limitless. Since managed futures is widely accepted amongst institutional investors, you could honestly raise 500M+, and make over 10M+ per month in commission! The only downside is, as a managed futures broker, you MUST get a Series 3 and NFA license. In addition, you must become affiliated with a seasoned commodities firm for 1-2 years. Though this sounds quite tough, in all reality, brokering futures is well worth the effort.
4. Hedge Fund Broker: If you broker hedge fund deals, your commission is either collected upfront (“load fee”), or earned through residual payments. Since the term “hedge fund” is really just a corporate structure, there are very few things which are present in ALL hedge funds. For example, you can have a hedge fund that trades options on futures, and another that buys securities. The only thing that’s present in all hedge funds is the “JV” agreement, outlining the relationship and fee structure. In short, the potential for brokering hedge funds depends COMPLETELY on the background of the fund. If you’re working as a broker for a successful FX fund, it could be VERY easy to become wealthy. On the other hand, if you’re working for a equity-based hedge fund with conservative yields, it could be VERY tough. All in all, remember this, FX and commodities are the wave of the future, NOT securities. If you’re going to broker a hedge fund, focus intensely on these two markets, and you’ll be set.
5. Private Equity Broker: As a private equity broker, your commission is a fixed % upfront, or a residual payment which varies between firms. If you’re collecting your brokerage commission in residual payments, as with most alternative investments, you’re paid as long as the client’s invested. In order to broker private equity markets, you MUST be affiliated with a firm carrying a FINRA license, and have one hell of a drive! Though the private equity market has some opportunity for brokers, due to the recent financial crisis, we advise our readers to place their efforts elsewhere. Until the economy completely recovers, it would be an uphill battle to solicit most private equity products. Despite this fact, there are ALWAYS “stars” in every investment market, so keep your eyes peeled.
Though we haven’t discussed every kind of alternative investment broker, we’ve covered the most popular markets above. As you can see, any type of brokerage can be lucrative, but FX and futures have become the emerging trend. With forex and commodities attracting more investors than ever, it isn’t hard to see why most believe they’re the markets of the future.
In summary, the concept of alternative investment brokerage may appear simple, but it’s not as easy as it sounds. To be a successful broker, you MUST have people skills, confidence, integrity, ambition, and strength to overcome adversity. Without even one of these characteristics, in most cases, you’ll eventually realize you’re “barking up the wrong tree”. Whether you want to become an alternative investment broker or not, just remember, BROKERS make the world go round….
InsideTrade LLC Staff Phone:(949) 444-2111