10 things you need to start a forex brokerage
Choosing a custom forex broker solution
If you’ve been successfully trading forex or working as an introducing broker for a while, you may be interested in starting your own forex trading business. Forex brokerages can be lucrative, and if you have experience with forex and connections in the community, you’re already off to a good start.
Many companies offer advice on starting your own brokerage, and most of them present two options for doing so: starting a forex brokerage from scratch or buying a turnkey forex brokerage.
If you start a brokerage from scratch you obtain a license for a trading platform, build software for your clients, obtain regulatory licensing on your own, set up a bank account, etc.
If you buy a turnkey forex brokerage, you purchase all the services you need from one company, including an MT4 platform, liquidity, payment processing, etc.
Those are both valid options, but there’s a third option that isn’t talked about as often – building your brokerage using existing services.
Think of it this way – you could build a house with your own two hands and deal with the time and work required for that much labor, or you could buy a house that someone has already built and settle for the house the way it is. Or, you could hire a few different, specialized contractors to build a new house for you to your specifications.
After all our time in the industry, we really think the last option is the best one. You can choose among all the different service providers in each category so that you get the exact services you need at the best prices.
So what do you need to start a forex trading business? These are the 10 essential tools you need to start your forex brokerage:
- Business plan with a target market
- Understanding of legal requirements and financial regulations
- Website and branding
- Bank account
- Liquidity provider
- Payment processor
- White label or MT5 platform
- Trader’s portal (trader’s room, client cabinet)
- Back office software
The good news is that you don’t need to find or create all of these things by yourself. Some businesses provide each one of these separately, and you can choose from those businesses to get the best price and service for your investment firm.
Business plan with a target market
At some point during the process (probably many times), you’ll need a business plan for your brokerage. With a little internet research, you can likely write your business plan yourself.
For a forex brokerage, you should include a discussion of the start-up and operational costs, the way you will process trades, how invested money will be held and managed within your trading business, what the competition is doing, your expected profits, and a risk analysis.
You will be better prepared to write a business plan if you have decided on a target market for your forex business. In other words, think about the clients you plan to target and where they are located before you draft your plan.
If you want help with your business plan, you can hire a freelance writer from a website like UpWork. You can also hire a company that offers business plan writing services; a Google search for business plan writer will give you a variety of options.
Understanding of legal requirements and financial regulations
One of the first steps in starting your firm will be to establish a legal business entity. The options for your business will vary based on your location and the location where you will market your services.
If you plan to obtain a license to sell forex products, you may need to set up your business entity in the country that will issue that license. Therefore, it’s important to understand the regulatory environment for new forex brokers in the locations you are considering.
Once you’ve chosen where you want to target clients, you can look for law firms in the country that can help you set up your business and begin the licensing process. Again, Google can help you find someone to help. Search for something like forex trading license South Africa law firm and you’ll see lots of options. Then, you can compare services to see which firm is in the best position to help you start your forex brokerage.
Website and branding
Setting up your website and deciding on branding for your firm will also be an important task to complete early in the start-up process.
Since most forex trading happens online, you want to have a website that stands out and meets forex traders’ expectations. Companies that offer turnkey forex brokerages sometimes offer a website in their package. However, they often have the same template for all the brokerages that they work with, which means your website might be incredibly similar to many other brokers’ sites.
Look for a company that builds custom websites that also has experience working with financial professionals.
You should also consider offering your website in multiple languages if you plan to target a country where more than one language is spoken widely. Turnkey forex companies are unlikely to offer such a service.
You will need a business bank account to operate your forex brokerage company. Unfortunately, banks are sometimes hesitant to offer bank accounts to forex businesses, especially unlicensed ones.
You may need to contact multiple banks to find one willing to work with you. Talk to your liquidity and white label providers, because they may be familiar with banks that welcome forex providers.
Those providers may also offer some kind of bank account services, and this is one area where you may want to bundle services together. It’s become increasingly difficult for financial professionals in the forex space to get a business bank account. If you can easily acquire one from your white label or liquidity provider, you’ll save yourself time and hassle.
Liquidity providers for retail forex brokers often aggregate liquidity for global banks, financial institutions, and other market makers. The liquidity provider you choose greatly affects the spreads that you can offer your clients.
You want to choose a liquidity provider that offers you the tightest spreads. The liquidity providers associated with turnkey forex solutions sometimes have larger spread markups than those you can get if you choose a liquidity provider independently.
In order to accept deposits from clients as quickly and efficiently as possible, you need to work with one or more payment service providers (PSPs).
PSPs charge a flat transaction fee for each transaction as well as a fee that is a percentage of the total change. The lower these fees are, the better rates you’ll be able to offer your clients.
Because PSPs have access to your finds, you want to choose one that is well-established and has a good reputation.
White label or MT5 platform
You can either get a license from a trading platform or you can get a license to the trading platform from a third-party forex white label provider.
Most new brokers choose to get a white label because getting a full license from MetaTrader is often too expensive for small forex brokers. Additionally, MetaTrader no longer sells licenses for MT4 so you can only offer MT4 if you get a white label license.
When choosing a white label provider, ask about whether you can add your own branding to your white label platform so that it matches your website.
Your client portal (sometimes called a trader’s room or client cabinet) is the software your clients will use to see their accounts, enter payment information, see forms and disclosures, upload KYC documents, retrieve important messages, and more.
This software is an essential part of how you’ll interact with clients, so you need to choose a tool that provides a friendly and professional user. It should also be available in multiple languages if your forex brokerage will operate in a region where multiple languages are spoken.
As with the white label, your client portal should offer branding options so that it seamlessly integrates with your marketing website and trading platform.
Client portal tools are often a part of CRM and forex back office software because the tools needed for a trader’s portal, a CRM, and back office software are interrelated.
Back office software
Back office software for forex brokers provides revenue calculation, fee management, compliance tools, partnership management, and other essential software for running your business.
This software should make it easier to run your business, so think about the tools you need to effectively manage your brokerage before you choose a software provider.
Back office software overlaps with CRM software in many ways, so you may see these terms used interchangeably or as tools that are sold together. In general, back office software may not include as many tools for marketing or for interacting with leads.
Client relationship management software (CRM) can help you track interactions with clients and leads. It usually includes messaging features and marketing tools as well as activity logs and other tracking features.
When choosing a CRM for your new forex business, make sure you carefully consider the company that will provide the technology. If you purchase a CRM from another broker, they will have access to all your lead and client data. If you purchase the tool from a company that simply makes software, you can be confident that your data is less vulnerable.
Starting a forex business may seem overwhelming in the beginning. If you break down the process of opening your own firm into smaller pieces, it can be much more manageable.
It may be tempting to buy a turnkey forex business because you won’t need to do as much research into the individual companies you’re working with. Thoroughly research the prices for all the services included and compare them to the prices you could get if you purchased the services separately.
We have software solutions for forex brokerages. Contact us to learn more about the CurrentBusiness CRM, back office software, and client portal.