New Forex brokers have an important decision to make: should they open an introducing brokerage or a white label brokerage? With the main differences between the two mainly revolving around flexibility and scope of operations, there are a few facts that new brokers should keep in mind.
New brokers to the Forex market need to be aware of the fact that there is an extremely diverse selection of business models, of which one must choose when opening their brokerage, that will determine not only the amount of profit they will make, but also the nature and atmosphere that their company will have moving forward.
Of the many available options, the two most relevant for novice brokers are either becoming an independent brand or opting to be an IB. It goes without saying that both options have positive elements and challenging elements, so here are our thoughts on the topic and a few humble recommendations.
Introducing Brokerage
In essence, an Introducing Broker is more of an affiliate marketing specialist than an actual brokerage. This is because their method of operation is to recruit traders for a primary broker, who directly receives all of the money from the deposit and then compensates the IB for the deposit according to a fixed and predetermined amount. How they reach out to new clients and recruit them is up to the IB, who receive a special ID link that allows both him and the primary broker to track recruited clients.
Since an Introducing Brokerage is, essentially, an external service provider for a primary brokerage, the extent of the partnership can vary and some IBs also choose to handle additional operations, such as conversion and retention efforts, for their targeted clientele. This element is also what separates these companies as brokers, rather than marketing affiliates.
There is a great advantage for new brokerages to start off as IBs, especially if you can get a considerable amount of traffic quickly. The reason for this is that setting up an IB operation is considerably quicker and easier than building a primary brokerage. For starters, the costs are considerably lower, as the entire technological aspects – the platform, payment solutions, encryption etc. – are already active and provided by the primary brokerage. The significant part of establishing an IB brokerage is setting up a call center and marketing team.
Although there are many advantages to opening an IB, it is not without its shortcomings. Of these, the main ones to consider are that as an IB you are in fact less independent than a white label broker. As we mentioned earlier: as an IB, you are promoting an existing brokerage as an affiliate of sorts, you are not opening your own full brokerage. Standing on the shoulders of an existing brokerage might be a good starting point, but for aspiring Forex entrepreneurs with long term ambitions in the industry, this isn’t ideal.
White Label Brokers
White Label brokerages are the real deal. They are bona-fide brokerages with an independent brand, independent client support, payment solutions, risk management, marketing, sales, retention and more.
As with IBs, there are many configurations in which such a brokerage can operate. From a “bare-bones” brokerage that leases the platform and back-office services to a full-fledged operation including all of the services mentioned above. There is a tremendous amount of flexibility when choosing this model.
While white label brokers have a high degree of autonomy in building and running their brokerage, they do have some limitations. These limitations are, however, primarily technical and stem from the fact that the lion share of brokerages lease their platform and server space rather than invest in a proprietary software and server farm. As a result, they are limited by the functions of the system – such as tradable assets, hours of operation, and more. In addition, the trades are de-facto processed by the company which leases and maintains the trading platform, but the fees, spreads, terms and more, are all determined by the brokerage, not the platform provider.
Naturally, the associated costs of opening a White Label brokerage are higher than those associated with opening an IB, as are the procedural requirements, but the potential returns and growth opportunity are equally higher.
The process of opening a White Label brokerage is very structured, efficient, and simple, and many providers offer pre-structured packages to build your own white label brokerage. Leverate’s LXLite and LXSuite packages give you ample space to develop your brand, and it’s an excellent springboard for those who wish to achieve full independence as Forex brokers.
The LXLite white label solution enables new brokers to start operating with CySEC regulation from day one, without the hassle of opening a bank account and setting up payment providers, since the broker can use our own. Clients get comprehensive support from our professional team while they start building their brand’s customer base and gain their first taste of the business. For eager entrepreneurs, this is definitely the fast track.
At the end of the day, there is no absolute right or wrong when making the decision of which model to choose. This is simply a question of what is the optimal use of your resources, your desired scale of operations and your future plans. While opening a white label brokerage might be a good option for veterans, the ease and relative low risk of opening an IB might make it a better option for newcomers. It is also important to keep in mind that a brokerage’s operation is dynamic, and many brokers end up upgrading their scope and status – even to the point of becoming a self-sufficient brokerage that then leases its’ platform to white label and IBs. In this way, start-up brokers can establish themselves as the future leaders of the industry.
