How To Start Your Own Forex Brokerage
Forex is the largest market in the world, it involves trading currencies in pairs through an OTC or over-the-counter exchange.
Becoming a broker, especially in the Forex market is a huge decision. It’s a journey more often taken by industry professionals that know and understand the business, they have held key positions in Sales, Marketing, Affiliates, Introducing Brokers, or were White Labels before. Whether you understand most of the business or not, let Global Currenciez guide you through the trading technologies. We provide you with a full solution to your needs in a single place. No need to outsource multiple 3rd party providers, whether you need assistance with company formation, company banking, payments, and licensing our experts will help. Learn more about the opportunities for starting your own Forex brokerage.
If you are going to start something, why not create the best?
3 Ways to Become the Best Forex Broker
Ever since the dot-com boom, information has been much more accessible, opportunities to voice opinions and a channel to create aspiring online businesses has driven through global audiences. Among the list of many businesses that have boomed as a result of the internet and globalization are online Forex brokers.
What is a Forex brokerage?
A Forex brokerage is an organization that connects Forex traders, mainly retail traders (individuals that trade the foreign exchange market) with the Forex market. The Forex or FX market is traded through the “interbank” network, which is how banks are connected and trade with each other at varying bank to bank prices.
The growth of Forex brokers online
The major growth to online Forex brokerages can be credited to more people wanting to make money from home rather than going to work and putting money into someone else’s wallet. Among the hundreds of millions who prefer to work from home are Forex traders – people that analyze and predict price movements of different currencies from around the world to make a profit. To do this and execute each trade, they need a Forex broker to do so. The more “at home traders” there are, the greater the demand for Forex brokers will increase.
Entering the Forex Brokerage Industry
Today, the sheer availability and number of online Forex brokers are staggering. You don’t have to look very hard to find one. However, with this increase, many more unreliable Forex brokers have taken their place in the market, making false promises they cannot keep. They promise their potential clients they will make money, lower spreads, or the most user-friendly trading platform available. Many new traders get sucked in, burn through their money and end up leaving the broker, and the entire market altogether. Clients your traders, need reliable Forex brokerage services. For those who do not have that will lose every single time.
If you are truly passionate about starting your own Forex brokerage business, then here are three factors you need to consider to be a successful Forex broker and remain competitive.
# 1. Ensure world-class support
This should go without saying why it’s number one. Red flags are raised if clients start having trouble with undertaking simple activities such as withdrawing funds or being avoided when asking the support team questions.
To remain competitive, and just in business period, you must be in-tune with your clients and support must be high quality and responsive. If a customer asks a question about your trading platform and how to use it, your support must provide specific detailed-instructions. When clients go to deposit or withdraw their funds, this should be a seamless process that does not take more than two business days to process. It’s the small things that add up and eliminate any doubts the customers could have about your services.
#2. Offer little or no commission
A commission is basically a fee that incurs when customers place a trade (a buy or sell order). This commission typically varies dependent upon the currency pair that is traded. In Forex the commission is usually spread based. One way of looking at the general structure of any Forex trade is that all trades are conducted through Forex brokers who charge and earn money for their services. This charge is the difference between the bidding price and the asking price for a trade, or “the spread”.
The goal is to make Forex trading as cheap and affordable as possible for your customers. By offering low spreads and little or no commission, you create the type of trading environment ideal for the client.
Many Forex brokers lie, claiming their trading is commission free, but all they do is pump it through the spread cost so customers never receive the real benefit. To accompany low spreads, low commission can work wonders for Forex brokers. However, the worst thing you could do is promise low or no commission but fake it by pumping up the spread costs. Forex brokerage owners don’t want to wait and rely on the volume of traders and customer acquisition, so they earn money as fast as possible by overcharging them straight away. Unfortunately, a lot of brokers do this and end up losing customers and more importantly their credibility.
#3. Don’t over-make your market
Forex brokers earn their spread cost between two currencies, (i.e. GBP/JPY, EUR/USD) from the interbank market. The interbank market is a financial network of major banks, hedge funds, and other financial institutions that are legally obliged to serve commercial turnover of currency investments as well as large sums of speculative, short-term currency trading. The interbank financial system of trading currencies among banks and financial institutions, excludes retail investors and smaller trading parties.
For example, if the interbank market is charging 1 pip spread of the EUR/USD currency pair, a large volume of Forex brokers markup the spread cost to around 3 pips. In doing such, the Forex broker yields of profit of 2 pips on every trade for this currency pair. In essence, they are making their own market by over-charging their customers, but this can be a recipe for disaster since this makes Forex trading more expensive.
There is nothing writing with marking up prices from the interbank market, but don’t over-do it. There are tens of thousands of other Forex brokers who will be happy to take your customers just by quoting a cheaper spread. This related highly to the six most-traded currencies. The last triennial central bank survey lists them as (from highest to lowest): US Dollar, Euro, Japanese Yen, Great British Pound, Australian Dollar, and the Swiss Franc.
Bear in mind that the US Dollar contributes to approximately 86% of the total daily trading volume, so this should be the primary currency to consider when making the market and coming up with a suitable price for the customers.
The Forex brokerage market is not for everyone
Just because you may have enough capital required to get started does not mean you will succeed as an online Forex broker. You will still need to take care of overhead, configure executable marketing and sales strategies, have a well-designed trading platform, client portal, unmatched customer service and much more. If you are not exactly familiar with the entire process, here are the steps you need to take before launching your own online Forex brokerage.
7 Steps Before Starting Your Own Forex Brokerage
You have decided to start your own online Forex brokerage. Perhaps you have seen or heard about the massive amount of money to be made and want to catch some of the action. Maybe you have been around the industry for awhile and it’s been your longtime dream to own a financial brokerage. Whatever your reason may be, you are on the path to opening a Forex brokerage which can either be an entrepreneurship heaven or hell, depending on how well you plan your strategy.
As an expert is business and brokerage-startups and having assisted brokerages across the globe in successfully launching their own Forex brokerage, I’ve summarize the entire process into seven steps you must follow to start your own brokerage:
#1. Spend adequate time on research
This should go without saying, you must do your homework and determine what you target market will be. Forex licensing and regulation requirements are determined by the country you will be actively seeking traders from.
#2. Gather initial capital
Forex brokerages have two types of expenses, operating costs and trading expenses. In some areas, there is a minimum capital requirement for Forex businesses who are based locally or who seek clients living in the jurisdiction. Some even have an applicant net worth requirement.
Regardless of capital requirements set by individual jurisdictions, any type of brokerage should initially plan to have significant funds set aside to cover overhead costs during the first six to nine months of operation. Operating funds and trading funds must be separated.
#3. Incorporate your brokerage firm
Before you open your brokerage, you will need to incorporate, it is required to complete any of the next steps. Once you have been incorporated you will want to become licensed. A lot of consultants will tell you licensing is required, however, there are some countries where licenses are not, however it is highly recommended! Some locations, such as the Cayman Islands, Belize, the British Virgin Islands, Cyprus, Luxembourg, and Panama, are more catered to newly incorporated brokerages.
Cyprus is one of the most popular countries to start a brokerage in, since registering in Cyprus provides brokerages access to clients residing in any of the countries belonging the EU or European Union.
#4. Form contracts with Payment Service Providers
It is highly advisable to have more than one PSP or payment service provider available, if your primary PSP shuts down, there will be backup already in place.
If your business plan and starting capital allow for it, another thing to consider would be starting your own payment services provider service. This market is very lucrative and with the success of your first Forex brokerage you will have consistent income through your PSP.
#5. Establish your corporate offices
Establishing your corporate offices is another very important step, this includes things such as your physical space requirements (real estate, phone lines, fast internet connection, electric, etc.), evaluating, acquiring and setting up a trading platform, choosing your strategy (A Book or B Book), creating a website and collateral, hiring staff, designing and administrative system (HRM and CRM), creating a sale marketing strategy, sales funnel, and so on.
- It is important you choose you physical location wisely, to maintain trust and credibility with clients.
- This step is where most of your money will be spent, it holds the highest ongoing overheard costs. With the market being so lucrative, virtually everything will have a monthly expense.
#6. The training and testing phase
To many, this isn’t the most fun step of the entire process but is an absolute necessity. Once you are setup, it’s time to test everything and make sure everyone is trained. Test your trading platform, train your sales and customer support teams, make sure your development team is ready to handles and glitches in the systems, and do this all before you go live with an official launch.
You can launch your initial marketing campaigns and start trading with a small group of clients as a test.
- Make sure deposit and withdrawal transactions are seamless.
- Make sure there are no glitches or lagging on trade executions.
- More importantly, make sure that your customer information is safe and highly encrypted!
#7. It’s time for your Forex brokerage to go live
Once you are confident enough in your systems and your staff it’s time to move forward and fully scale your marketing efforts to acquire clients. As you transition into a full-scale marketing campaign and begin the client acquisition process, asset the development of your lead generation, conversion and retention efforts, monitor your profitability, and look for potential opportunities for growth, including a new mix of financial products and services.
Don’t make the same mistakes as other Forex brokers
Don’t make the same mistakes many other Forex brokerages make. Although being a Forex broker is very lucrative, if you miss steps or don’t plan properly, you will lose a lot of money and ultimately fail. Do not rush the process. Even you when feel your business has succeeded, you will need to continue your efforts to further optimize and grow the business.
Don’t be like many other brokers whose plan is to thrive on their clients’ failure. Overtime, that will start to give you a bad rep and it will catch up to you. In addition to those seven steps there are still factors you need to consider before starting your own brokerage.
6 Points to Consider Before Starting Your Own Forex Brokerage
The foreign exchange (FX) market now generates almost $6 trillion a day, making it by far, the largest and most liquid market in the world. Over the past few decades the opportunities and successes in the foreign exchange market have attracted a staggering number of investors and traders. The sheer growth and the number of Forex brokers over this time is attributed to the fact that people are realizing the tremendous amount of potential revenue there is for them when they start their own brokerage rather than simply trading or intruding clients to other brokers.
The growing number of start-up Forex brokers this past decade is evidence that more and more Forex entrepreneurs are finding it more profitable to start their own Forex businesses rather than continue to funnel leads and business to larger brokers via traditional IB or Introducing Broker programs.
The size of the Forex market holds vast opportunities, and if you have ever considered setting up your own Forex brokerage here are six factors you should be aware of and follow before starting your own FX brokerage firm. The first point you want to consider is the establishment of your company.
#1. Establishing your company
Looking back on the third step of starting your own Forex brokerage, some of the major challenges new brokers face when launching their brokerage is the initial work required in establishing a company. This work includes the legal framework, establishing corporate relationships with banks, prime brokers, and developing the brokerage firm’s workflows and processes. Here are a few of the most important steps you must take, when setting up your own brokerage:
- Register and license your Forex brokerage company in a jurisdiction that is conductive of your budget, your target market, and business requirements
- Opening your corporate or business bank account for client deposits and company operations. When client deposit or withdraw funds, the transactions take place through your company bank account.
- Establishing an office space, buying office equipment, supplies, and everything that’s included. We went over some of the basic monthly expenses involved with operating your brokerage but there are other costs such as desks, computers, phones, fax machines, and other things that will be required when you start.
- Hiring and training your staff to execute your marketing, sales, support, and development needs properly. While it’s important to hire the right people for the job, make sure they all pass background checks and have the right experience, making sure they are trained properly with your brokerage systems and goals is even more important.
#2. Choosing the right business plan for your FX brokerage
Today, there are four business models that Forex brokers can adopt, each type of brokerage has its ups and downs:
- Market Maker or Principle Model: These brokerages use the B-book method (which assumes the risks on its own books from its clients’ trading activity). There are many brokers who use this method due to the profitability factor, but ultimately your clients will eventually find out and leave. This Forex business model creates a conflict of interest between you and your clients.
- You profit from their failures,
- there is technology available that will even put the odds farther in your favor, such as plugins to delay order executions (meaning your traders won’t enter or exit the market in time),
- software to automatically hedge against your traders (this takes on the concept that 95% of traders fail and put the math in your favor).
- Agency or STP Model: STP short for Straight Through Process, is a model where all trading activity is processed through a reputable counterparty. This is also referred to as the A-book model. The reputable counterparty is usually a prime broker or perhaps a liquidity provider. STP is a dealing desk model that works on automated order flows. This model can have a conflict of interest, where many shady brokerages use bots instead of liquidity, but market their services as a “non-dealing desk” or “direct market access” broker. To realize profit, this Forex model requires a higher spread cost which is another turnoff for potential traders.
- Hybrid Model: This is where the brokerage runs a combination of both the market maker and agency-based models of a certain criteria of risk. Many successful brokers capitalize on the advantages of both A-Book and B-Book trading models. Some traders are wary of the conflict of interest present with market making brokerages, while others are only looking for the lowest possible spread. By combining the two you are able to provide an even mix.
- Electronic Communications Network or ECN Model: Although, both STP and ECN models are technically A-Booking methods the difference between STP and ECN Forex brokers is that one sends your order to a third-party (STP) while ECN brokers match (buyers and sellers) the traders’ order with another recipient in the market. That recipient could be a bank, it could be someone sitting at home wearing fuzzy house slippers. After being introduced just over 10 years ago into the equities market, ECN brokers have become a household favorite, for being a more natural trading environment. The network makes it to where no one dealer in control of the quotes. The spread is usually half a pip or so, but the trader is paying a commission, which can be a disadvantage to any clients who are scalping the markets.
Whichever Forex broker model you decide to go with, it will be ideal to find a counter-party/ technology partner who is flexible and has a strong structure in place. They should be adaptable to any business model that your retail brokerage would implement.
Another thing is to ensure that your brokerage setup supports ideal Introducing Broker (IB) and Money Manager (MM) infrastructures that include all the necessary trading and reporting tools. IB and MM programs are some of the primary catalyst that increase your trading volume and happens to have the added benefit of not incurring ongoing costs. The IB model is the most common broker model used by broker businesses, the broker benefits from the new business introduced and the IB in return receive rebates based on the trading volume of introduced clients.
#3. Broker transparency and ownership
The importance of partnering with the right banks, liquidity, and technology providers are crucial. Choose the candidates the provide the most transparency because they will be the ones that offer you the most complete information for trade reporting and execution on a real-time basis.
Transparent partners will also make sure that you have and maintain full ownership of your clients personal account details, and that their information with not be shared or sold to anyone, especially your competitor.
Transparency is hard to come by in any Forex white label retail broker programs, since you are not in control of any of those details therefore you will always have that risk.
#4. Keeping your clients’ funds safe
While it is not necessary, it is highly recommended to be established as a regulated broker to provide surety that your clients funds are safe, as you will be required to segregate and provide a level of safety that would not exist without regulation. Regulation requirement are different for each jurisdiction and are available on their regulatory government’s website.
#5. Choosing the right Liquidity Providers
In case you are not familiar, Prime Brokers offer packages or bundles of borrowed cash to financial firms to be able to invest. For a Forex business model, Prime Brokers offer the capital for your clients to trade with, without it coming out of your own account. Since the 2008 financial crisis, Prime Brokers have been very selective in establishing relationships, this resulted in many brokers losing their tier-1 prime brokerage accounts.
Prime brokers are happy to deal with multinational corporations, hedge funds, and larger brokers, but that same cannot be said for small to medium sized brokers that do not have significant capital backing them. This was known as the evolution of a new model called (PoP) or Prime of Prime. Prime of Prime – in this scenario is a Brokerage that has an account with a Tier-1 Prime Broker (which is typically a bank like DB, Citi, UBS) and extends those services to other market participants such as retail Forex brokerages, Forex funds, or other smaller institutional players who cannot establish relationships directly with a Prime Broker.
The benefits of PoP for the broker who cannot establish direct relationships with a prime broker is that they get the same benefits that a prime broker offers such as the ability to have your money in one place, dealing with a single point of contact, and margin.
It’s always advisable for startup brokers to know who the underlying prime broker is when dealing with a PoP setup. A strong prime broker will offer their clients deep pools of liquidity across multiple liquidity providers, reliably and at low cost. When choosing a PoP, it is very important to choose a regulated Prime of Prime that offer quality, institutional, Tier-1 liquidity, and transparent execution.
#6. Choosing the right Technology Providers
To get your Forex brokerage off the ground you will need a technology provider that offers innovative technology to ensure you have a competitive edge. The only way to get your brokerage to market without a technology provider is to do what Forex brokers did a few decades ago, which is paper trading. Each client would have to call in to place, modify, or close a position.
New Forex brokers should look for flexibility in their technology provider who can grow and scale with them as their needs change. Today, there is a wide range on providers that offer turnkey solutions for technology as well as end to end solutions. Technology providers offering trading software, bridges, and risk management tools.
The number of STP brokers that have been taking over the marketplace have risen over the last few years, simply due to the fact that they carry minimum risk and don’ have the hassle of a dealing desk. An advanced risk management system will not only minimize any potential for loss to the broker but provides a good trading experience for the broker’s traders.
Consider all factors when starting your own Forex brokerage
If you are passionate and want to establish your own brokerage, consider all the factors mentioned so that you can create a reliable and successful brokerage. An opportunity exists for entrepreneurs to potentially profit from the fastest growing market in the world.
With Global Currenciez, you are assisted by top qualified professionals who are here to support you throughout your journey. Global Currenciez’ cutting-edge technology and years of expertise in the industry will result in premium services during the entire process. For more information on starting your own Forex brokerage, download our brochure and Free Forex Brokerage Business Plan, complete the form below:
Start Your Own Forex Brokerage
The Global Currenciez team holds the most experienced Forex and CFD Broker professionals in the industry. We learn and understand our clients’ needs, whether you want to start your own Forex brokerage or a fully established brokerage with additional solutions to cater your size and growth. The GC team specialized in customizing a solution tailored to your goals, budget, and requirements. Our priority is to provide you with the solution you need, this way your focus can be on other important areas of your business, the marketing and sales side, if you choose not to opt for our services.
We are industry leaders in technology and financial services, our team has helped form some of the largest names in the business as well as assisted in starting up dozens of new and successful brokerages around the world.
Our trading technology solution we call our “start your own Forex broker pack,” delivers a fully operational turn-key solution for the establishing of your online financial trading company and incorporates the Metatrader 4 (MT4), Metatrader 5 (MT5), or a full custom developed trading platform.
The Global Currenciez start your own Forex broker solutions included, but is not limited to:
- An integrated Forex trading website and Automated Payment Solution.
- MT4 Trading Platform, with Mobile, Web Trader and MAM – All fully branded.
- Risk Management and Tight Transparent Liquidity.
- Liquidity solutions for STP as well as Market Making Brokers.
- Integrated Forex CRM specifically built for the online Forex and CFD Broker, integration to VoIP, mass mailing and more.
- 24/7 (with crypto) dealing and support room including intensive training.
To become a Forex broker, it takes a lot of learning the skills, knowledge, and industry knowledge pertinent to the foreign exchange market.
How Can Global Currenciez Help You Start Your Own Online Forex Brokerage Today?
Start Your Own Forex Brokerage Business – Ideal Solution for Small / Mid-Sized Financial Companies.
We register and incorporate numerous international business entities every year in most offshore and onshore jurisdictions.
Our powerful Back-office tools allows you to manage your brokerage from anywhere while our risk manager tools help you to make quick and tangible decisions.
Providing all the right elements, our website makes any trader want to deposit funds and start trading.
- Financial services firms that want to move their Forex trading operation online quickly and cost effectively or establish a new Forex brokerage division; for example, stock or futures brokerage firms, etc.
- Trading firms and/or online brokers that want to offer a greater range of products to their customers. By expanding into the fastest growing financial market around (foreign exchange), you will be providing your clients with a great value-added service while increasing the profitability of your firm.
- Companies offering Forex tools and advisory services – This can be websites or newsletters that provide an analysis of the Forex or futures market, advisory businesses, etc. that want to expand their web presence by offering online Forex trading capabilities to their existing client base.
We can offer any of the following services and products and far more. You are the total owner of your Forex brokerage company and as such you choose what you need to do and we are here to deliver it to you.
- Together with our legal and compliance department we can setup your brokerage as an Offshore/Onshore entity.
- Apply for FSA/ASIC/CySEC/IFSC/FSC license at any time.
- We can offer you a complete trading platform setup with your company brand name and logo.
- We can provide solutions for banking & merchant processors.
- Your trading platform will be hosted in our secure SaaS environment.
- We can offer you Live price feeds, news feeds and other platform requirements.
- We can install, configure, host, maintain and support your trading server.
- We can offer you a complete Forex website with automatic account creation, Rates feed, market news and other features.
- We can implement live chat support modules.
- We can integrate your brokerage with Tier 1 / bank liquidity providers.
- We can provide you the API/Connection to the liquidity providers.
- Free consultation on how to set up your business and run successfully.
Other relevant services we offer:
- Start your own Forex broker
- start your own Forex hedge fund
- start your own Crypto hedge fund
- start your own payment service provider
- start your own Crypto/ ICO / Initial Coin Offering
- start your own trading platform
- start your own Forex business/ company
- start your own Forex signal service