Bitten by the Forex business bug? Well, it's not just you. As the fastest growing market in the world, foreign exchange attracts a significant number of traders and investors to the tune of an average of 6 trillion dollars is traded every day in the market. Brokers who act as the bridge between the retail traders and the interbank market/liquidity providers have realized the tremendous opportunity this industry presents.
This has resulted in a slew of new Forex brokerage firms popping up every month, setting out to capitalize on the trend. While earlier the role of a Forex broker was limited to simply introducing clients to big banks and liquidity providers for a commission, now Forex entrepreneurs find it more profitable to run their own brokerage firms.
Now you too can be a part of the largest financial market on earth by setting up your own brokerage. Here's how you can get started in a few steps:
Other steps in establishing your company include creating corporate bank accounts for client deposits/company operations and identifying and developing the workflows and processes of the business. You may also need a PSP account, E-Currency merchant account for accepting deposit from clients as processing payouts in the name of a registered entity will provide more ease for your clients.
Secondly, you will need a website for your brokerage to market your features and offerings to potential traders. Website is a vital need for a forex broker as the quality of its content and design sums up the brand value of a forex broker. Understanding the needs of traders is important in website designing and development. In this digital era, an online presence is a must for any business, especially so in the case of Forex where the trading and transactions are primarily online in nature
A website will give you that online presence where your users can interact. Web applications like the CRM and CMS also enable business owners to automate most of their business activity. CRM helps to manage your client of any size efficiently and will play an important role in your business. All your day-to-day acitivty as a forex broker can be carried out using CRM software.● Trading Platform and other software
Isn't software the centre of every business process these days? Forex brokerage is no different, it relies heavily on software like trading platforms, bridging software and risk management tools for its operation. A trading platform is the software offered by a broker for his clients to trade in the products offered. The exchange rates of the currency pairs and buy/sell quotes, etc will be intimated to the trader through this trading platform. The trader can place his order through the platform which will be backed and processed to the liquidity provider through a bridging technology.
For these requirements of trading and bridging software, a broker has to partner with a technology provider. The common trading platforms used by Forex brokers are MetaTrader 4, MetaTrader 5 , cTrader and Global Trade Station (GTS), among which the MetaTrader 4 dominates the market. It is the user-friendly interface and advanced features like automated systems that make the MetaTrader 4 the best platform. Technology providers also offer risk management systems to minimize potential losses as the foreign exchange market may carry an element of risk for the brokers. You can either develop/customize your own software which comes at a hefty price or choose to buy existing software.
Plan what are the offerings you want to provide your clients, the min/max trade volume you are willing to support, margin requirements and the business model you will follow. Generally, there are three models in working, market maker, STP and a hybrid model which follows a mix of the two. Modelling your business around trading conditions and offers like low spreads, commissions, transaction fees, rebate, high leverage, faster execution, bonus offers and promotions will give you an edge over your competitors.
It is the liquidity providers that make the foreign exchange market the most liquid market in the world, thereby keeping spreads and trading costs down. Forex brokers establish a relationship with liquidity providers to get access to deep pools of liquidity, improve their prices and facilitate quick execution of their clients’ orders. Most Forex brokers have a relationship with multiple liquidity providers to get access to the best rates. When choosing your liquidity provider look for regulated LPs who provide institutional Tier-1 liquidity and transparency in execution. Choosing a public listed regulated company will provide brokers insights of the company’s financial stability. Full ownership of your clients and their account details will be retained by you and need not be shared with the liquidity provider. The only thing you need is to set up a margin account with sufficient balance to cover the trades you pass. Any profits on the trades of your clients will be added to the margin account by the liquidity provider.
By the end of these 5 steps your forex brokerage firm will be all set! You just have to market your firm and bring in the clients. Offer the best you have to your clients to win their trust. A trusted broker is what every Forex trader is looking for. Being exactly that will win you clients with some of whom you can establish a long term relationship. Understand that the market can go into volatility at times and the risks associated with it. Keep risk management strategies in place for a rainy day. That's it, you’re an FX entrepreneur now!