Affiliate network: profitable business or a one-way game with a broker

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The vast majority of modern brokerage firms develop two lines of business simultaneously: the provision of intermediary services when bringing client deals to the market and the building of an affiliate network. And the second does not take away the attention and energy from the main activity of the company, but on the contrary, allows you to get even more prepared and interested customers without the serious costs of marketing, active sales or training.

Articles of the master class "The downside of trading

The company's partners do all the work of attracting and motivating clients to fund their accounts, receiving remuneration for each of them. Thus, anyone can join the successful brokerage business and receive income from their clients' deposits and trading.

Such a partnership seems to be an ideal example of a mutually beneficial cooperation between a large company and an individual or a small business. However, often partners receive only negative experience and stress instead of the expected income, and the company together with its client base accumulates reputation losses like a snowball. So what are the peculiarities of partnership in the brokerage business making it a time bomb for the company? And what should the future partners pay attention to in order not to be fooled in the end? Let's talk about that below.

Affiliate network: network marketing in financial markets

Each company may offer different types of partnerships, but despite the variety of names, most programs fall into four basic types:

The introducing broker or agent (IB) is a private person who presents the company personally among his circle of contacts.
Internet partner (Web) is an individual or small firm that promotes a company through websites, blogs and social media accounts.
A regional representative is a small company searching for clients in a region not covered by a broker.
A White Label partner is a company working under its own brand based on the broker's technology.

The first three types of partnership boil down, in general, to the same type of activity: motivating potential traders for opening and funding an account with a broker. They differ only in scale and preferred platforms for attraction. In this case, as a reward the partner may be offered a percentage of the client account replenishment amount or a certain fee for each lot in his future trading turnover. The more active clients a partner attracts, the higher his income. In case of long-term successful work partners are usually offered to go to a higher level and attract not only traders, but also new partners, getting income from their work as well.

It is obvious that partnership in financial markets works according to the classical scheme of network marketing and, in fact, does not differ from the functioning of network cosmetic companies and firms producing dietary supplements.

In the case of the White Label partnership, this is somewhat different. Here we are talking more about a franchise or the sale of ready-made technological, financial, and marketing solutions. The scheme of mutual settlements is more reminiscent of consulting work. Individuals and small firms with little or no capital are rarely involved in such partnerships, so we will leave it out of the discussion.

Broker risks

It would seem that in the case of affiliate programs the broker does not risk anything - the company easily gets new clients and, accordingly, increases its profits at their expense. However, unlike regular employees, partners are practically uncontrollable by the company and the broker has no guarantee of their integrity.

Often a partner attracts "fake" clients, who withdraw the credited funds and close the trading accounts immediately after the partner receives remuneration. Of course, compared to the broker's total turnover such a loss seems small, but in case of large-scale frauds such partnerships can become a real problem.

In addition, the allegedly attracted clients often become family members of the partner himself, allowing him to receive both remuneration for trading such client and directly profit from his trading activity. Such a situation is even more fertile ground for fraud, because the partner or his relatives can intentionally make the maximum number of unproductive transactions, inflating the partner's remuneration.

That's why all serious brokerage companies are trying to protect themselves from risks in advance and prescribe the following points in the conditions of affiliate programs:

Revocation of a partner's commission in case a client has withdrawn credited funds without having made a certain minimum number of trades.
Revocation of remuneration and termination of the partnership in case the partner and his client are affiliated persons, or in case the partner participates in the client's trading activities.

Partner Risks

The partner of the company also faces serious risks. He has no independent instruments for monitoring the trading activity of the attracted clients. One has only to rely on the broker's integrity and reliability of the statistics it provides. There are not many ways to prove its non-involvement in the client's trading in case of withdrawal of the compensation due to an unfounded accusation: the company has the right to make a decision at its own discretion, and providing any technical data which allows drawing such a conclusion is just a goodwill gesture from its side. Thus, the only way to resolve the situation in one way or another and fight for your rights is to bring the situation to the professional community through forums.

Usually such stories have sufficient resonance, but, alas, each side sticks to its opinion. The result of such disputes for the partner is only wasted time and stress, and for the company, a deterioration of its reputation.

A sensible approach to partnership, or how to drink champagne without taking risks

Despite all of the above risks, it is not worth giving up the opportunity to earn extra income if you really feel the potential of a partner. But before starting a partnership it is important to soberly assess your prospects and choose a bona fide company.

Carefully study the offers for partners. Alarming signals can be considered:

Initial investment requirements on the part of IB or Web-partner: The attractiveness of partnership in the field of financial markets lies, first of all, in its accessibility. Objectively, no obligatory investments or crediting of the partner's personal funds to the company at the initial stage of cooperation are needed.

The percentage or amount of the affiliate commission is considerably overstated compared to the market average: perhaps the company is simply not going to pay out the declared funds, and is only using them as bait.

Non-informative statistics on deposits and trades of the attracted clients: such situation may be indicative either of the company's lack of proper technical and software base for working on financial markets, or of its intention to regulate the affiliate commission independently, regardless of its real activity. In both cases it is not worth trusting such a company.

The absence of any requirements for trade attracted customers: probably, in this case, the company receives a profit not at all from the trade turnover - spread and Swaps, and overlaps trades on its own without entering the market, earning on client losses.

Fuzzy conditions for revocation of remuneration and termination of partnerships: perhaps so the company prepares the ground for the intentional non-payment of remuneration, depriving the partner even the slightest chance to prove his case in private negotiations with the company or in public resources.

Of course, 100% no one can guarantee that you will not encounter misunderstandings and problems in relations with your broker. But in case you haven't discovered any such prearranged traps or loopholes, you can feel free to try your hand on the other side of the barricades: to join an affiliate network, work and earn on financial markets under the auspices of a broker.