Alternative Investment Brokers, What are they?

In today’s world, brokers are used in almost every major industry. Whether you are buying a new shirt or a new 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 would expand on the topic of “brokerage” for our readers. In this article, we will define the term “broker”, and explain its relation to the alternative investment markets.  As you will see, brokers are the key to a company’s success or failure.  In fact, without brokers, most companies would shut down and our economy would fall apart instantly.   Could “brokers” really be the glue that holds our global economy together? 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 these relationships.  For example, a real estate broker earns a predefined commission for connecting a home buyer with the right seller.  Simple enough, isn’t it? Well, 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 the number of trades (“round turns”), profit-sharing agreements, or “rebates”. If you are 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 putting the investor at risk. Many of the most successful FX brokers can make over 1M per month, while maintaining a 50M+ book of investors. Currently, you need to get a Series 3 License and join the National Futures Association (NFA) if you want to broker managed forex in the USA.  If you are brokering offshore FX traders, the laws vary, as long as you are not soliciting USA investors. 2. Private Investment Broker:  When you are a private investment broker, your commission varies based upon the type of transaction.  Just like any other investment, you find the opportunity and introduce an investor to it, aiming to create a synergy between the two parties. After doing so, you can then create a Joint Venture (“JV”) agreement to secure your financial interests as a broker. Though there are several types of private investments, private placement has become the market of choice for most brokers.   Despite the fact that private placement deals are hard to close, brokers have flooded the market, chasing the dream of getting rich quick.  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 misrepresentation, fraud, and inexperience. 3. Managed Futures Broker:  If you are a managed futures broker, your commission is based on the number the trades (“round turns”) placed, or profit-sharing agreements.  As we mentioned before, if you are paid by the trade, look for a managed futures trader with a large number of round turns, and high yields.  By raising equity for a trader who places a lot of trades, you will earn far more in commission from the investors you introduce.  If you are a successful managed futures broker, your commission is almost limitless.  Since managed futures is widely accepted amongst institutional investors, you could honestly raise 1B+, and make over 20M+ per month in commission!  The only downside is, as a managed futures broker, you MUST get a Series 3 License, NFA License, and become affiliated with a seasoned futures firm.  Though this sounds quite tough, in all reality, brokering futures can be well worth the effort. 4. Hedge Fund Broker:  If you broker hedge funds, your commission is either collected upfront (“load fee”), or you are paid a small residual on the investor.   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 just buys securities. The only thing that’s present in all hedge funds is the “JV” agreement, which outlines the relationship and fee structure for the parties. In short, the laws, fees, and potential for brokering hedge funds depends COMPLETELY on the strategy and background of the fund.  If you are working as a broker for a successful FX hedge fund with high yields, it could be VERY easy to become wealthy.  On the other hand, if you are working for a equity-based hedge fund with conservative yields, it could be VERY tough to raise money during unstable markets.  All in all, remember, FX and commodities are the wave of the future, NOT securities.  If you are going to broker a hedge fund, focus on these two markets ONLY, and you’ll be set. 5. Private Equity Broker:  As a private equity broker, your commission is either a fixed % of the investment upfront, or a residual payment which varies between firms.  If you are collecting your brokerage commission in residual payments, as with most alternative investments, you get paid as long as the client is 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 and housing market completely recover, it would be an uphill battle to solicit a private equity product.   Despite this fact, there are ALWAYS “stars” in every investment market, so keep your eyes peeled for good private equity firms, because they are around. Though there are other types of alternative investment brokers, we have covered the most popular markets for our readers.  As you can see, any type of brokerage can be lucrative, but in today’s market, FX and futures have become the emerging trend.  With FX and commodities attracting more investors than ever, it isn’t hard to see why most brokers 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 will eventually realize you were “barking up the wrong tree”.  Whether you want to become an alternative investment broker or not, the one point to remember is, BROKERS make the world go round….