The Forex market moves volumes in excess of $5 trillion, more than any other market in the world, making it an incredibly attractive business endeavor. The tremendous growth of the market in the last decade has generated an unprecedented increase in the number of Forex brokerages. This accelerated growth is simply evidence of how profitable running an FX brokerage can be. Having realized the potential for profit, Introducing Brokers (IB) are putting on the FX entrepreneur hat, deciding to start their own brokerages, rather than continuing to funnel business through larger brokers by way of traditional IB arrangements. IBs have already mastered the bread and butter of the FX brokerage business, lead acquisition, so having the experience to effectively generate leads, it only made sense that they decided to take the opportunity to get a bigger piece of the pie by setting up their own Forex brokerages.
If you are an IB and want to own the flow that you generate and increase your potential for profit, take a look at our Start Your Own Brokerage guide.
So you have the marketing in place, but once you start bringing on clients, then what? What you will need is technology and the right back end systems to be able to operate. You need the right tech partner to get you up and running.
You need front-end platforms. A way in which traders can place orders, check the status of their positions, get the news, analyze charts, etc. Whether you decide to purchase, lease or attach your own brand to a white label platform provider, the success of your new venture rests on providing clients with an engaging trading platform that interacts with a robust risk management system and a powerful CRM. The platform you provide your traders with should be available for download, web, mobile and tablet.
In today’s ultra-connected and incredibly social world, offering clients access to a social trading platform is key to lowering the barriers of entry for new traders, increase engagement and generate more volumes. However, having any social trading platform isn’t enough. With regulation putting tremendous pressure over Forex brokerages and treating social trading as portfolio management, connecting your platforms with a regulation-compliant social trading network is crucial.
You need back-end systems. You will need a CRM system to help you optimize campaigns and client acquisition, conversion and retention. You will also need a risk management system to help you abide by the parameters you have set for your traders, and a price feed that is accurate and has ultra-low latency so you can provide traders with rate information and profit from trades.
In order to improve your conversion and retention rates, while reducing your staffing costs, you need to implement automation tools. Automated funnel flows with engaging and non-intrusive messaging based on best practices, can help you lower your CPA and improve your ROI, thus increasing your chances of success.
You need a liquidity provider. As a new broker, you will need access to a stable liquidity provider, usually a large bank or other financial institution that act as a market maker. Liquidity providers theoretically ensure greater price stability and improve liquidity by making it easier for traders to buy and sell at any price level. You will also need a Prime broker, which is a bank that provides a line of credit to your brokerage.
What else do you need?
You need money. Your new brokerage will have ongoing operating expenses as well as trading expenses. Certain jurisdictions have established minimum capital requirements for Forex companies. Your operating expenses are destined for things like paying employees, utilities, supplies, etc. and must not be mixed with finds received from traders. This is referred to as segregation.
You need regulation. With the increased pressure from regulators throughout the European Union to enforce stricter regulatory measures and new jurisdictions becoming regulated, there is no chance for success for unregulated brokers in today’s market. You can either apply for your own licensing and regulation, or work under the umbrella of a regulated technology provided.
What should you look for in a tech provider, consider the following:
- Are you the true owner of your clients? Who does the deposits go to?
- Does the tech provider also act as a market maker, thus creating a conflict of interest?
- Is the tech provider at the vanguard of technology, constantly looking for ways to better help you serve your clients?
- Does the tech provider have a proven record of success?
- Does the tech provider have enough redundancy in its systems to prevent technical down times?
- Does the tech provider offer access to a knowledgeable and dedicated customer support team available 24 hours a day?
If you are an IB, ready to start your own Forex brokerage, give us a call and let us be your partners for success.