6 Problems Forex Brokers Face and How to Solve Them
Forex trading expanded quickly among retail investors as online trading made it possible for average people to trade currency for profit. But online trading, working with inexperienced traders, and the global nature of the industry all make forex brokers’ work more complicated than that of other financial professionals.
We’ve been in the FX industry for a long time, and we consistently hear about the same problems from forex brokers. This post covers the challenges forex brokers face and offers suggestions on how to solve them.
New and more stringent regulations are the most complex problems that forex trading professionals face. The FCA, ESMA, and the ASIC have all enacted tougher regulations in the last decade to limit leveraged trading for average retail consumers because such trading is considered a high-risk, speculative investment.
These regulations may protect retail traders, but they could also simply drive those traders to invest with offshore brokers. Regardless of the regulations’ effectiveness, the entire forex industry must deal with them.
Brokers have a few options to deal with regulations. The first is to move offshore and into new jurisdictions to work with a global network of partners. This would enable brokers to match clients with partners in an unregulated country. The second option is to meet the regulation requirements.
Documentation and record keeping are key components of staying in compliance with financial regulatory authorities. Brokers should look for software and other back office tools that make it easy to demonstrate that their firms follow the law.
Good forex software should include client questionnaires to show that brokers aren’t selling improper products to non-professional traders. It should also keep records of the distribution of forms and disclosures, and it should allow brokers to easily show how many clients profit from their investments.
2. Brokerage growth
Before the implementation of existing regulations, brokers could attract new clients with large bonus offers and other incentive programs. Now, forex brokers need to find other ways to compete within the forex space.
They need to find ways to grow their businesses without bonuses or exaggerated promises a high return rate.
The simplest way for brokers to attract new clients is to demonstrate their financial expertise. Clients want to invest with financial professionals who have a proven track record of success and who can help them understand competitive trading conditions.
Forex brokers should make their own trading statistics available through a platform like myfxbook. They should also publish blogs, trading analysis, or webinars that can help clients learn more about investing. Both of these activities prioritize clients’ needs, and that prioritization will be essential for long term success.
Even when forex brokers find a way to differentiate themselves from their competitors, they may find it difficult to promote their services online. Regulatory authorities issue rules about investment advertising. Additionally, Google, Facebook, and LinkedIn all have advertising guidelines that curtail ads for high-risk investments. Of those three, only Google has a clear policy on how forex trading can be advertised.
All these marketing restrictions make digital advertising difficult.
To advertise forex online trading, brokers need to think about improving their organic search results in web searches, meaning they need to use search engine optimization (SEO) to show up in results when someone searches a phrase like forex broker.
Improving SEO and organic search is challenging. Again, publishing educational content like blog posts and webinars can help a forex broker rank well in search results.
Brokers also need to network with leads by using their LinkedIn profile and attending conferences for forex traders. They should place ads on websites like Finance Magnates and FinanceFeeds as well.
4. Technology and infrastructure
Because retail forex brokers mainly offer online trading, it’s essential for them to have outstanding technology. Many white label providers offer appealing products that connect firms to MetaTrader 4 or 5, but brokers also need back office technology that can support their daily work.
Financial advisors can waste a significant amount of time by doing tasks manually when they could automate them, like processing client questionnaires and approving KYC documents. If brokers only think about technology in terms of online trading, their infrastructure is likely ineffective.
Other brokers have adopted CRMs and back office software to streamline their work, but they haven’t thoughtfully considered the provider who makes that software. Some large brokers make their own software and then resell it to smaller firms. Unfortunately, those providers can often access client data and send marketing materials to the clients of the firms they sell their software to.
Brokers need to carefully consider the technology providers that they choose. Their client portals need to be well designed so that clients have a positive experience, but they also need to make sure their back office technology provides everything they need.
They should look for a CRM that makes it easy to track leads and monitor clients’ trading activity so that they can market the right products to clients and leads. They also need back office software that can quickly generate revenue reports, hold client profiles, store KYCs and documents, track communications with clients, and make it simple to comply with regulations.
To ensure they’ll get the best technology and keep their data secure, they should also choose to purchase a CRM and back office tool from a software provider, not another broker that is reselling their in-house solution.
5. Industry reputation
Forex trading has a poor reputation, which has been reinforced by some brokers’ bad behavior. Many ethical and trustworthy brokers operate without a license in order to give clients the leverage they want. In doing so, those brokers risk looking suspicious to new traders because of the industry’s reputation.
Brokers must do everything possible to show new leads that they are trustworthy.
They should use realistic advertising and avoid making claims in their marketing materials that seem too good to be true.
They should also make it easy for leads and clients to contact them by placing email addresses and phone numbers on their website. Even though most clients will never interact with a broker in person, brokers should also list their physical address on their website to help establish their credibility.
Being active on websites like Twitter, LinkedIn, and myfxbook can also show clients that the brokerage is established and reputable.
6. Client retention
Estimates show that acquiring new forex traders costs between $850 and $1,200 per trader. Unfortunately, most traders only continue trading forex with a specific broker for a few months.
These numbers mean that forex brokers must heavily invest in attracting new clients.
For long term success, brokers need to keep their existing clients longer in order to offset the price of recruiting new clients.
If clients decide to stop forex trading because they’re losing money, brokers can’t do anything to retain them. However, if clients remain interested in speculative trading but decide to leave a firm, then the broker has failed at client retention.
To increase client retention, brokers must make their relationship with clients valuable outside of clients’ profit margins. In other words, clients need to see that a broker provides them an important service. Brokers can use educational content and good customer service to create a connection with their clients that other firms can’t fulfill.
Looking at all of these problems and solutions, one thing is clear – to succeed over time, brokers need to implement practices and develop tools that really add value for today’s forex traders. They need to pursue new business models that prioritize clients’ needs and preferences, such as educational resources, market alerts or custom trading tools.
They also need to reduce costs and increase efficiency by adopting software tools designed for forex brokers. To see how CurrentDesk can help your forex brokerage, contact us.