A forex brokerage is the business which connects buyers and sellers of currencies in a single platform. Two brokerage models are in existence today.
- You can choose to be a market maker, in which case your brokerage will buy up liquidity from the major banks, and resell these in smaller chunks to retail clients who typically open accounts with a few hundred or thousands of dollars.
- You can opt for an ECN model where your trading clients use your platform to deal with the major banks on the interbank market directly.
In order to become a forex broker, there are considerations that must be looked into in order to help you create a hitch-free operation. Here are the aspects of the forex brokerage operation which must be setup to get you started in the forex brokerage business.
The exact timing of starting up a forex company may vary depending on the size of the company you want to open, whether you need the office immediately or plan to start attracting customers only via the Internet, your website requirements are, etc.
In order to meet the specified deadlines, work must be organized based on own experience, knowledge and skills, or delegated to professionals.
Step 1: Company Registration and Licensing
The first step to becoming a forex broker is to register the business. In terms of forex brokerage business, there are three categories of countries where registrations are done. These countries are classified according to the following factors:
- Presence/absence of a Regulator.
- The requirements for carrying out a forex brokerage business
- The registration cost.
Category 1 refers to countries where forex brokerage services are not regulated. Registration of a company in these countries is very fast; probably the fastest of the three. Countries such as the Marshall Islands are in this category.
Category 2 is made up of countries where forex regulation is weak. There is regulation, but the requirements for doing forex business are not stringent. Countries in this category include the Seychelles, Belize, Vanuatu and the British Virgin Islands.
Category 3 features countries where the regulation of forex brokerage business is very stringent. These include countries such as the US, UK, Bulgaria, Cyprus, Russia, Japan, Australia, etc. This is the most expensive option and requires a great capital outlay as there are capital requirements to meet.
The integrity of a forex brokerage business lies in its licensing. Aim to secure an operational license from a jurisdiction with international clout. You may need to work with companies that are experienced in licensing matters. It may be costly initially, but it will be better for your business in the long run.
Step 2: Opening a Bank Account
Opening a bank account is a crucial step. The forex brokerage will be receiving money from clients and if located in Category 3 countries, an additional bank account which segregates these funds and separates them from the company’s operational bank accounts is compulsory.
The choice of a bank depends on which country the brokerage will operate from. Most companies that operate in non-regulated jurisdictions find banks in Eastern Europe to be a good option. Banks in Western or Central Europe, the UK and the US tend to fit brokerages that operate in Category 3 forex jurisdictions.
Step 3: Website Development
The forex brokerage will typically source clients from around the world. Therefore, a website is required to establish the company’s online presence. There are certain specifics a forex website must have, and that is why only professionals experienced in building websites for forex brokerage businesses should be involved in this. The website must be able to capture prospective clients’ data in the account opening process, must be able to integrate with digital wallet and credit card payment solutions and be able to provide certain services specific to forex such as serving forex news feeds. The website should have a pleasant UI, be visually appealing and easy to navigate.
It can take a few months to come up with a good quality website, so the development should be commenced as soon as the company registration process is under way.
Step 3: Choosing a trading platform
The trading platform is where your clients will interact with other traders and your company in the process of buying and selling currencies. The platform could be developed as a proprietary solution in-house. This is expensive and takes a lot of resources. Therefore, most companies go the way of using a turnkey solution such as the one that B2Broker offers.
Step 4: Getting an Office
Most jurisdictions require forex brokerages to perform their business from standard and professional-looking offices. It also enhances the image of your brokerage operation to have a nice, well-designed office. The office should emit the “money” atmosphere and have a warm feeling with polite and helpful staff. It is all about building trust. Invest properly in the office space
Step 5: Staffing
A forex brokerage is nothing without well-trained, professional staff who are knowledgeable about the business. This includes the customer service desk. There is nothing worse for prospective clients than contacting the customer service on a Live chat, and not being able to get ready responses to questions. The staffing of the dealing division and other operational staff must be top-notch. Staff will be in charge of the following day-to-day tasks:
- Marketing and handling of affiliate issues.
- Conducting trainings and seminars
- Customer interaction
- Maintenance of the platform and website (these can be contracted out though)
- Development of marketing and promotional materials
- All customer banking transactions (crediting of trade accounts and client withdrawal requests)
Great attention should be paid to staffing of the marketing department. Most of the revenue of the forex brokerage will come from continuous trading business, therefore promotion of active trading, re-deposits and referrals should be a priority. There should be a robust CRM system to attract and retail customers.
Step 6: Development of New Products
There is a lot of competition in the market for forex clients. One way to set your brokerage business apart from others is by creating new forex products for the market. When social trading was created, it set the brokers that applied it first apart from their peers. Innovation is the sure way to ensuring your forex brokerage stands out from the rest.
This article provided by B2broker that is in forex brokerage business.
