Nowadays there is a significant number of Forex brokers on the market, vying for your trade. It is often hard for a trader to choose a suitable service provider, due to the number of factors in play. Commissions, spreads, execution models, trading platforms, regulations, promotions, among other factors, tend to determine the choice of a broker. This article will explain the most important elements involved in setting up a Forex brokerage business. Will it be useful for just regular traders? Certainly, as you will be able to better understand the differences between brokers and, subsequently, be able to make a more informed decision which is right for you.
Required steps to open an FX brokerage
The steps towards opening a brokerage will depend on the capital at your disposal and the extent of the effort you are willing to make, but they can generally be broken down into the following:
- Company registration
- Website development
- Selecting and set up of the trading platform
- Establishment of the office
- Personnel hiring
- Marketing and advertising
It is often possible to execute the aforementioned tasks simultaneously. If done correctly and efficiently, the whole process can take just 2-3 months. Let’s take a look at every step in detail.
Any business has to be registered and brokers are not an exception. Usually brokers tend to register in the country whose regulatory body will issue their license, but it is also common to see brokers registering companies in the countries where they are establishing branches. Hence, to establish a Forex broker you firstly need to register a company. Note: you may often see brokers registered in the UK, this does not always mean that such brokers are FCA regulated.
Registering a company can cost anywhere from $2,000 to $300,000 or even more. This expense largely depends on the licensing/regulatory costs. Many brokers opt to reduce this chunky expense by opting for registration and regulation in cheaper territories, at least initially.
Nearly every modern business needs a good online presence and in the FX market particularly, this is essential. Trading is executed online and the same applies to client registration, verification and even depositing. Additionally, many brokers also develop a separate affiliate website for partners. Again, the prices here can range significantly.
The best advice here is to subcontract to a company that has experience with the development of sites for Forex brokers. Otherwise you risk spending a fortune on a webpage that does not convert visitors into clients. Better opt for a tried and tested format, at least initially.
This step can be undertaken parallel to setting up a company and going through the regulatory process. Usually brokers tend to start with a light ‘Beta’ version of the website and gradually update it with additional functionality and value-added features.
This is a core element of any brokerage as the trading platform is where the traders interact with the broker most frequently. There are a few trading platforms available from third party developers: MetaTrader 4, MetaTrader 5, UTIP, cTrader and more. The prices for these products vary. For some you will pay a monthly subscription fee, some are volume based and others just charge a one-time fee. Prices range from just $1,000 to $100,000. If your chosen platform does not come with liquidity providers, you would need to account additionally for the establishment of partnerships with prime brokers and large banks.
Currently the most widely used trading platform is MetaTrader 4, but this is also the priciest platform. Typically, it would cost around $100,000 to start off with, but might need some additional development, bridges and so on added which will drive the cost up further. It is possible to go for an alternative such as the UTIP trading platform, that comes at the price of $15,000. Also UTIP allows for quick and easy integration of binary options trading, a niche trading instrument that has been growing rapidly over the last few years.
There are quite a few options and it is certainly advisable to examine the profile of your target trader before deciding on the most appropriate trading platform for your brokerage.
This process is not so time consuming and may take a few weeks. But note that you should begin it as soon as possible, as your platform has to be well-tested before being brought to market.
Establishment of the Office
This is the step that should be undertaken once you have your legal entity registered, website up and running and your software in place. Ideally the office location should correspond to the primary market of your operations, this way you will be able to staff the office with a suitable sales force.
It is not advisable to go for a large office space at first, as rent is a fixed overhead you want to minimize while the business becomes established. Start small and pick up a space that can accommodate somewhere between 5 and 20 people, depending on your budget. However, make sure it looks nice and professional as this has a significant impact on the motivation and productivity of your staff. And don’t try to be too conservative when buying office furniture and equipment. People have to feel as though they are working for a serious company and a nice office environment is a significant contributor to that.
Hiring the Team
Managing a brokerage requires a number of roles. You will need to have at least a compliance officer, client support, sales, accounting and marketing departments. Staffing is also essential as it will pretty much determine your success in the long run. The salary levels in the FX industry tend to be quite similar to those in banking.
Ideally you should start with employing a few sales people that will be responsible for converting your leads into the clients. Then, you should make sure that your operations are running smoothly, hence focus on proper support officers, compliance officers and financial managers.
Last but not least, get some high end marketing specialists. Even one is enough at the beginning, focus on quality rather than quantity.
It is advisable to start the staffing process even before the office is ready, as you would want to get as large pool of quality candidates as possible.
Marketing and Advertising
Forex trading is one of the most expensive industries when it comes to marketing budgets. It is common for a broker to spend from $20 to $200 per client registration. However, as a newcomer to this industry you would need to spend much more than the leading brokers to develop a known brand.
As your recourses are limited at the beginning, it is recommended to focus on one or two channels for attracting clients. Those could be: content marketing, search engine optimization, pay-per-click advertising, social media marketing or offline ads, amongst others.
As you can see, there are plenty of tasks to complete in order to establish a viable brokerage business. One would need a budget of at least a few million to start a proper FCA regulated broker. This is why sometimes brokers tend to save up and start with unregulated entities before they have proper operations for scaling into a regulative environment.
It may not always be easy to do each of aforementioned tasks by yourself, and there are companies such as New Broker that help brokerage start-ups to excel.
What you have to note is that FX is a very profitable industry and launching a successful Forex brokerage could be the smartest decision of your life.