If you are here, you must have felt the humongous size of Forex Market and mulling the idea of start forex brokerage
Or probably you have been trading into Forex and now want to start your own forex brokerage
Or a friend just suggested you to start a forex brokerage firm when you guys were sitting in a bar!
Whatever may be the case, this article will give answer to following similar or identical questions about starting a forex brokerage business:
- How to Start a Forex Brokerage
- How to start a Forex company
- Open a FX Brokerage
- Start your own Forex Brokerage
If you read and analyse these frequently asked questions by start up forex brokers, they all mean the same thing; getting in-depth understanding of the process of starting a forex brokerage business.
Read further to get answer to all the above questions.
Forex Trading has always been there but it was mostly done among the businesses, government agencies like central banks and institutions for settlement etc.
But the advent of technology made it easier for everyone to get access to the MOST LIQUID security market.
Forex Trading has got some real momentum in past two decades. Every class of people and society; right from big institutions to a home maker, are participating in Forex Trading Ecosystem.
As the Forex Trading market is expanding globally, need for people and business who create and facilitate the buying and selling of currencies over internet aka World Wide Web has increased many fold.
This has introduced great opportunities for new businesses and Forex Brokerage Business is one of the most lucrative and sought after business in Forex Trading Ecosystem. There are many people mulling to start their own Forex Brokerage Business.
The million dollar question is:
How to Start Forex Brokerage?
If you are one of those looking to start a forex brokerage, we’ll help you with a comprehensive guide here. Like any other business you need to follow a step-by-step process to start your own forex brokerage firm.
Step I. KYM: Know Your Market
If you are mulling the idea to start a forex brokerage, chances are pretty high that you are already active in Forex Trading Eco System and attracted by its sheer reach, volume and dynamic nature.
Just in case you are not very familiar with the forex market, this article will help you. You need to Know Your Market where you are going to operate so that you understand the market opportunities, potential customer base, customers trading capital size, their preferred banking and payment mode, competitions, restrictions, regulations etc.
The Forex Trading is directly related to the economic well being of a country. If a country’s economy is flourishing and mostly due to globalization, there are great opportunities for trading business.
Shortlist the market and run some numbers.
For example; you might want to explore South Africa for forex market. Check the employment data and try to figure out how may of these people are:
- Young educated population
- have access to internet and computers
- have at least USD 100 of excess money that they can put in speculative business like forex trading
- if some of them are already trading into forex
- what would be your cost to reach them by way of online adverts, digital marketing, affiliate marketing, influencers marketing etc
Don’t worry, you need have exact numbers, a rough estimate is going to be enough if you know what you are doing. You may need just couple of thousands traders as clients with minimum forex trading account size of USD 100 to start your forex business.
You just need to be clear who are those potential clients and where & how you are going to get them to trade with your forex brokerage firm.
|Great if you already know||Not Much||1-2 Weeks|
Step II. Business Plan
Once you are through with Research Work and Know Your Market, you need to draw a business plan. Most of people just starting up panic when they hear about preparing a business plan that too for Forex Brokerage Business.
Hey! Don’t worry, you need not write a comprehensive fancy business plan. All you need to do is to pick up your diary or a note book and write the things that you are required to do and have to operate a fully functional forex brokerage business.
Here is a simple checklist of things to do when you start a forex brokerage business
- Set Up an Office
- Forex Brokerage Company Formation
- Bank Account Opening
- Forex License (Optional depending on what kind of business model you choose and jurisdiction you operate in)
- Technology (In-house Development or Forex White Label License)
- Revenue Streams
- Budgeting: Cost & Expense estimates
- Timeline for Turning Profitable
|You may need help of Consultants||USD 10,000||1-2 Weeks|
Step III. Technology
You need to decide whether you want to develop own forex trading and brokerage technology on your own right from scratch or you intend to go with a reputed Forex White Label License. Development of forex trading terminal along with back end for forex brokerage operations takes significant resources both in terms of time and capital. An estimate says you need at least 6 months and half a million US Dollars to develop a functional Forex Trading Solution.
On the other hand you can simply license a Forex White Label Solution like MT4/MT5 White Label, C Trader, Ami Broker etc. and you are good to start. And this is going to cost as low as USD 5500 for first month and USD 1750 in monthly fee. For just 1% cost you are good to start the Forex Brokerage Business within a week.
|Take help of Forex Brokerage Solution Providers||USD 10,000||1-2 Weeks|
Step IV. Payment Gateway
As a Forex Broker, you are essential dealing into money night and day! And the first thing your clients/forex traders are going to do before or after signing up with you, is deposit the money into their trading account. They are going to make withdrawals as well occasionally. You need a Payment Gateway that helps you manage the deposits and withdrawals as per your target clients. You must have researched their preferred payment mode like Credit Card, Debit Card, Bank Transfer, PayPal, Neteller, Skrill etc.
Step V. Liquidity Provider
Liquidity is the most basic and essential feature that a Forex Trader looks for when picking the Forex Broker. You as a Forex Broker need to decide how you are going to settle the orders placed by Forex Traders which essentially is Order Matching. There are primarily 3 options:
Where the orders are sent to external network of Liquidity Providers, ECN etc. for settlement. Forex Brokers only make money by swap, slippage, brokerage, commissions, and withdrawal fee etc.
Forex Traders trust the A Book or ECN Brokers or STP Brokers.
Here the opposite side of trades are taken by broker itself. They make profits when the trader loses and vice versa. As we know, over 90% of traders lose money and B Book makes brokers earn huge money but this is double edged sword if you don’t manage it properly.
Forex Traders usually don’t trust the A Book or ECN Brokers or STP Brokers. But you can educate them and build trust.
If you do B Book, make sure you have adequate reserve capital and are transparent about it with your clients.
C Book or Hybrid
As the name suggests it’s the mix of both A Book & B Book. Forex Brokers can decide which orders to send to A Book and which ones to settle at B Book. Make the most of your Forex Brokerage Business.
We have written a detailed blog about forex liquidity providers, their types, and how liquidity providers make money. Please read it here!
Step VI. Marketing & Promotion
Every business needs Marketing & Promotion and Forex Brokerage business is no exception.
To start a forex brokerage business, you too need Marketing & Promotion. In fact, Forex Brokerage needs a lot of it. Start promoting your business as soon as you decide to start it and initiate business registration process.
Do at least following simple, low cost yet effective things as soon as you decide to start your own forex brokerage:
- Create a website
- Create Facebook, Twitter, Telegram accounts, Reddit, YouTube
- Start posting on Forex Forums
- You can run add campaign on Facebook, YouTube, Google Adwords etc.
- If budget allows, do consider sponsoring a Forex Event like Conference, Seminar, and Workshop etc. in your target location.
Step V. Soft Launch
Its good idea to go with soft launch before you actually start a forex brokerage business.
Check all the steps right from customer on-boarding, KYC, accounts creation, fee and charges settings, payment gateway, currency pairs, order execution etc.
Run the mock up sessions, test the whole environment with the help of 4-5 traders and see if everything falls in place before you go live. Fix all the critical bugs before you go live.
You can give early access to some pro-traders to test everything rigorously how different stages are functioning and where you need to fix issues:
- Account opening
- KYC (Know Your Customer)
- Profile creation and edit
- Deposit & withdrawals
- Funds credit to trading account
- Live price feeds speed and accuracy
- Order Placement & Execution
- Slippage, Swap, Spread etc. accuracy
- Promotional campaign analytics to assess whats working and whats not
- Website is fully updated with all packages, charges, terms and conditions, disclaimers etc
You can incentivize them with some rewards like Currency Balance for Trading Account.
Step VI. Hard Launch
Time to go live and see the real action! Start with as many traders as you can but don’t wait for some magical number like, we would only go live when we have 1000 traders.
Start with whatever number of clients you could get after all the marketing efforts and build your business on that.
Pro-tip: Choose a non-event day to launch to ensure the launch of your forex brokerage is smooth. Launching on high volatility day like on first day of trading week or event-day may not be a smart move.
- Keep a task action team ready to handle any issues or problems. The issues and bugs are more common than you would expect.
- Keep calm and don’t panic during an unprecedented event system shut down, feeds getting broke, orders not going through etc.
- Keep a close watch yourself on everything for at least first 4 weeks.
- Review everything at the end of every day and categorically check how many users were active, what pairs they traded into, their lot sizes, profit & loss, your earnings, what went wrong and if your team was able to address it, how much time did they take etc.
- Last but not least, keep improving on your issues and bugs so that your traders and clients keep their trust on you.
Hope this post gave you clarity of what you need to start a forex brokerage business right from scratch.
Like any other start up business, to start forex brokerage firm you need to follow these step-by-step process to ensure faster executions and success at the end.
Read other posts to get in-depth understanding of forex brokerage business operations.
If you want to understand about Choosing Right Forex White Label Solution Provider : Definitive Guide. Read the blog!
Wish you a great forex broker start up and successful business venture!