In 2022, a number of new forex brokerage firms emerged in the forex market. When launching a forex brokerage firm, selecting the jurisdiction of incorporation, regulatory license, and trading software are the cornerstones of establishing a forex brokerage business. For startup forex brokers, how should they choose their jurisdiction of incorporation, regulatory license, and trading software?
Jurisdiction and Regulatory Licenses
Since different regulatory bodies set varying standards for brokers’ financial health and operational management, many traders use the regulatory authority issuing a broker’s license as a preliminary basis for evaluation.When selecting a jurisdiction and regulatory license, brokers must first consider their own circumstances, including: the country or region where the company plans to conduct forex business; the timeframe for launching operations; the trading model the company will adopt; the company’s asset size; and the costs associated with applying for a license. They must also take into account the profile of their target clientele.
If a broker plans to register a company and apply for a license in countries such as the United States or Japan, the review process may take a relatively long time (typically 1–2 years). This means that if you wish to launch your forex brokerage business in the short term, it is best to choose a different jurisdiction.Furthermore, the United States (NFA) and Japan (FSA) have very stringent requirements regarding a company’s capital and compliance reporting. In addition to requiring the company to have $20 million in capital, they also mandate annual fees starting at approximately $125,000.Clearly, while licenses from these two countries can provide brokers with the best reputation for attracting clients, they require companies to possess strong financial resources.
Alternatively, brokers may consider applying for regulatory licenses in the United Kingdom ( FCA ) and Australia (ASIC). While their compliance reporting requirements remain high, the initial capital requirements are lower. The time required to obtain licenses from these regulatory bodies is also slightly shorter than in the U.S. and Japan, taking approximately 9–18 months.For startup forex brokers, jurisdictions such as Cyprus ( CySEC ) and New Zealand (FSP) are more suitable options. They typically have no or only minimal capital requirements, and the time required for a company to apply for and obtain a license is shorter—approximately 6–9 months.
The regulatory bodies mentioned above are all onshore regulators, whereas jurisdictions such as Belize (IFSC) and the British Virgin Islands (BVI) are offshore regulators. Although the application process for licenses in these regions is shorter—taking approximately 2–4 months—brokerage firms may face issues related to lower security standards.
In terms of brokerage business models, forex companies can choose between models such as MM (Market Maker) and STP. Since, under the STP model, all trading order risks are passed on to liquidity providers, whereas under the MM model, risks are borne internally, regulatory authorities typically impose higher capital requirements on MM brokers than on those operating under the STP model or similar models.
The profile of the target clientele is also a key consideration for brokers when selecting a jurisdiction and regulatory license. Brokers need to assess the importance of the license and jurisdiction to potential users in order to choose the most appropriate jurisdiction and regulatory license.
Trading Software Systems
First, brokers must consider the software’s performance. A forex trading platform must ensure a smooth, stable, and lag-free trading experience, with the capacity to support a large number of users trading online simultaneously. At the same time, the software’s service capabilities are also crucial.The trading software system should offer a diverse range of features, providing traders with various trading methods—such as copy trading and automated trading—as well as multiple payment options to meet the needs of different traders. It should also provide comprehensive technical indicators to help traders analyze market trends.The convenience of the software is also a key consideration. The trading software system must not only meet the trading needs of desktop users but also ensure that mobile users can trade at any time, while being compatible with multiple operating systems such as Windows and iOS.
A More Feasible White-Label Solution
On the one hand, MetaTrader has announced that it will tighten its vetting process for all white-label companies—including enforcing KYC verification—to strengthen oversight of brokers, which undoubtedly raises the barrier to entry for brokers using the system. According to industry insiders, MetaTrader may even completely shut down all software services outside of the main MT5 platform.
On the other hand, due to the current political and economic climate, MT4 and MT5 have been banned in many Western countries to prevent financial risks such as illicit fund transfers. For white-label forex brokers, this policy will significantly limit their ability to provide brokerage services to clients in certain regions.
Compared to other trading platforms such as MT4 and cTrader, Lirui’s Sirix offers more lenient KYC requirements, access to full-featured functionality at white-label pricing, exceptional value for money, and a fee structure that does not depend on trading volume.
