A trader needs to do months of preparation before stepping into the fast-moving forex market. They need to analyze the market and make sound decisions based on their strategy to get the best possible results in the end.
But becoming a forex broker requires much more preparation as you not only have to study the market dynamics but also learn about the potential client base and their requirements, which are traders themselves. The process is time-consuming and tedious, to say the least, and putting the plan into action would be even more complex.
However, the process has become easier with white label solutions coming into the picture, as they have helped new brokerages to launch brand new brokerages within their budget. But before you proceed with the business plan, there are some important things that you need to know, and this article is written to share the same. So, keep reading till the end so that you don’t miss out on anything while starting your forex brokerage.
Prerequisites for Setting Up a Forex Brokerage
The success of any business depends on the resources and planning, and in order to get started with the process, you need to learn about the prerequisites for setting up a forex brokerage.
1. Business Plan
You cannot build a business empire without a well-defined plan, and the same applies to a forex brokerage business. You will have to decide everything from the brand name to the jurisdiction where you want to offer your services. What business model you will be adopting for running your brokerage should also be fixed during the planning phase. You need to choose an order execution mode while devising the business plan. There are two types of forex brokers in the market.
The first one is a market producer; they are responsible for giving liquidity to the clients by going about as a counterparty for every one of the exchanges that are executed on their foundation.
They are referred to as B-book model brokers. They offer in-house order processing, and there is no other party involved. The market maker brokers will decide the price quotes themselves.
On the other hand, A book model brokers offer Straight Through Processing with No dealing desk intervention happening. They just act as a middleman connecting the traders to the decentralised market by partnering up with multiple liquidity providers executing high-volume trades. Thus, they are able to offer deep liquidity and best price quotes by choosing the most favourable prices that are available.
Typically, the spreads of A book model brokers tend to be lower than market makers as they always get a commission when trades are executed. Being an ECN broker offering trade execution with an Electronic Communication network is ideal for attracting more clients since scalpers and day traders prefer to trade with ECN/STP brokers to get raw spreads and minimise the trading cost.
2. Registration of Your Business Entity
Once you have finalised the business plan, you can take the first step to implementing this plan by registering your business entity within the region where you wish to run the brokerage. Registration of a business is different from regulatory procedures required for brokerage. Registration is mandatory for all businesses, irrespective of their services or products. But you need to comply with the regulatory formalities for functioning as a forex broker within the legal boundaries.
Being a regulated broker is the best approach for building a loyal client base, as traders tend to trust licensed brokers and prefer to trade with them. The process of obtaining a licence would differ based on the jurisdiction you choose. Offshore jurisdictions have a liberal approach when it comes to licensing or regulation. Still, operating under the regulatory oversight of a top-tier authority like FCA, CySEC, ASIC or FSCA would be ideal.
The process will be completed for a new broker, but when you choose a regulated broker as your white label provider, they will help you with the process, making it faster and easier.
3. Infrastructure
After registering your business and obtaining licences, you need to work on the infrastructure that is required to run your business. This includes creating an office setup, which can either be a physical place or a virtual office system. You should also open a bank account to keep the funds. Most traders prefer that their funds be separated from the funds of the broker as it gives them a sense of security. Hence, you need to make arrangements for the same, and the white label provider can help you with this.
There should be an accounting and bookkeeping system to keep a record of the transactions that are related to your brokerage business, including income and expenses. There is a full white name arrangement which permits you to deal with the assets of your clients, and in the event of a fractional white mark arrangement, the essential specialist or white name supplier will be the one gathering stores from your clients.
4. Technology
The technological infrastructure is the most important aspect of opening a forex brokerage. When you partner with a white label provider, they will let you use their own technology after rebranding, and you won’t have to build or develop any software solution from scratch. This reduces the initial setup cost to a great extent and ensures a seamless trading experience for your users, as they will be getting access to the same platform that a top broker is providing.
The technological infrastructure includes everything that you would need to function as a forex broker. A branded and customised business website with trading platform integration, which can be beginner friendly platform MT4 or the platform for advanced traders, i.e., MT5 or any other depending on what the white label provider offers, payment processing systems, CRM solutions and more, will be available with a white label package.
You will be able to customise the platform and establish your brand identity by working with the white label provider. When you choose this turnkey solution, you should enquire about the account types offered for trading. For instance, if you want to operate as a halal or Islamic broker, you need to find a white label provider who offers an Islamic account to Muslim traders. This way, Muslim traders will choose you as their broker in order to get favourable trading conditions while also staying true to their religious beliefs and values.
5. Marketing and promotion
When you depend on a white label solution, you will be able to spare more time for focusing on marketing and promotions, which are essential for reaching out to your audience or potential client base. The white label provider may offer some assistance in the marketing department and will give valuable guidance to help you out in brand positioning. However, you need to do your own research and come up with innovative ideas to promote your brand name.
The forex brokerage industry is competitive, and having a unique selling proposition (USP) is essential for survival. You need to win the trust of your clients by offering quality services and bringing your brand to their attention with social media marketing, SEO techniques and digital advertising.
6. Customer Support
No trader will choose a broker or platform if they don’t get a responsive customer support team to answer their queries or resolve the problems they face while using the platform. Hence, you need to ensure customer support systems that are available 24/5. Live chat support systems and multilingual customer support are helpful for widening your potential client base by communicating with traders on a global level. The white label provider you choose can help you in this aspect by sharing their customer support systems with you. Hence, your clients won’t have to wait to get assistance when they want to reach out to you.
7. Insurance
Opening and running a forex brokerage is risky as the forex market is highly volatile, and your revenue may be affected in adverse market situations. Hence, applying for business insurance is recommended to protect yourself from unforeseen losses. It does take time to bring clients to your platform, and you should have enough funds to keep going with little revenue in the initial phase of your business. You can seek advice on insurance plans from your white label provider, as most top brokerages are insured for a secure future even if they encounter losses. You can find more information about the insurance plans for brokerage businesses and choose the one that fits your bill.
Final Thoughts
Finally, the entrance to the brokerage industry is easier than ever with affordable white label packages, and new brokers can mark a successful beginning to their business by teaming up with a reliable white label provider. It not only reduces the financial burden but also simplifies the process. However, attaining success as a brand new forex broker depends on how well you can market your services among traders, convincing them to choose you as their broker.
