If we look upon over the past few years, the golden opportunities and favorable outcomes in the foreign exchange market have allured a significant number of investors and traders & became one of the most lucrative sources of income. The huge influx of Forex brokers in this industry is attributable to the fact that they have realized the tremendous revenue opportunity that is there for them; when they own a brokerage rather than simply introducing clients. 

Forex market where the profits & losses are virtually unlimited & with proper risk management it will bring out your fruit of success. So, it’s not surprising why many brokers have set up their own business to claim their share of the Forex market.

The Forex market space holds a significant amount of opportunities. Like every plan or business plan, it requires a blueprint on how to reach a certain pinnacle point by going through many steps. From the scratch to the top, here is a proper guideline of setting up a Forex brokerage & make yourself up to your ambition. These 7 major guidelines that can help you to understand the processes –

Fundamental steps for starting a Forex Brokerage

  1. Company Incorporation & Brokerage Licensing
  2. Choosing the Right Business Model.
  3. Connect with a Liquidity Provider.
  4. Partnering up with a Payment Gateway Provider.
  5. Choosing a Trade Platform & Right Technology Providers.
  6. Make your Online Presence.
  7. Soft Launch.
  8. Start your brokerage.

Company Incorporation & Brokerage Licensing

At the initial step of starting a new Forex brokerage, some of the crucial challenges new brokers face are the initial paperwork that requires establishing a company. This process includes the compiling to a legal framework, establishing corporate relationships with banks, prime brokers, and developing the brokerage firm’s workflows and processes.

First thing first, the required capital for start off is varied by the jurisdiction of the country wise. Make proper research before gathering total capital for starting and running the business.

Now, your business will need to incorporate according to respected jurisdiction. Once you have been incorporated you will want to become licensed. There are some countries where licenses are not, however it is highly recommended! Some locations, such as the Cyprus, Luxembourg, Cayman Islands, Belize, the British Virgin Islands & Panama are more catered to newly incorporated brokerages.

One of the most popular choices for the newly incorporated brokerages is Cyprus. Since registering in Cyprus allows the brokerages access to clients residing in any of the countries belonging to the EU or European Union.

The regulatory environment is another very important aspect that should be considered. An investor will want to find out whether the company is registered & supervised by the Financial Supervision Authority.

At the moment, Forex brokerages can be regulated by:

ASIC – Australian Securities and Investments Commission

BaFin – The Bundesanstalt für Finanzdienstleistungsaufsicht (Germany)

CFTC – Commodities and Futures Trading Commission (United States)

CySec – Cyprus Securities and Exchange Commission

FCA – Financial Conduct Authority (United Kingdom)

FFMS – Federal Financial Markets Service

FINMA – Swiss Financial Market Supervisory Authority

FMA – Financial Market Authority (Austria)

FSA – Financial Services Agency

FSB – Financial Services Board (South Africa)

There are many more regulatory bodies countries wise, the above mentioned are the top regulators.

For a better understanding, we are explaining how to get a forex brokerage license in the USA.

To get a Forex license in the USA a business must register with an NFA (National Futures Association) & the CFTC (Commodity Futures Trading Commission).

Getting a Forex license in the US means registering with NFA as a Futures Commission Merchant. A futures commission merchant (FCM) is an entity that solicits or accepts orders to buy or sell futures contracts, options on futures, retail off-exchange forex contracts or swaps, and accepts money or other assets from customers to support such orders. To register as an FCM and become an NFA Member a company must complete these 6 steps:

  • Designate a Security Manager to obtain secure access to NFA’s Online Registration System (ORS).
  • Complete an online application form.
  • Satisfy compliance requirements for FCM applicants.
  • Complete online Annual Questionnaire.
  • Pay a non-refundable application fee of $500.
  • Pay non-refundable FCM membership dues.

FCM membership dues for a retail foreign exchange dealer are $125 000 for an initial setup plus a $125 000 to $1 000 000 annual fees, which is calculated based on your annual gross revenue. The commission is much lower for an individual Introducing Broker and equals a $750 initial setup fee and $750 annual dues. An Introducing Broker firm must pay $2500 respectfully.

According to NFA, any Forex broker that accepts US-clients must register with the Association. That’s why many brokers prefer to only offer their services to people from outside the US to avoid the complex and expensive procedure.

(*Figure of fees amount may change as per the change of regulation)

You’ll also need to establish institutional relationships with several parties necessary for your business. Some examples are corporate banking solutions, payment gateway services, wire solutions, hosting services, etc. 

Connect with a Liquidity Provider

The lifeblood of Forex brokerage is liquidity, so connecting with a leading liquidity provider is vital.

Liquidity is the fundamental factor that any broker should look for. Choosing a valuable & trustworthy liquidity provider is a major step before creating a new forex business.

The main features of liquidity solutions are:

  • Pricing: The probability of earnings is bigger if tight spreads are obtained. A broker can become more competitive on the market and reduce trading costs if the spreads are tighter.
  • Credibility: If you are planning to enter the forex market, you should plan an association with a trustable liquidity provider.

A long-term agreement & relationship always matters. A company’s reputation & reliability are the main subjects on which you need to focus. Choosing an unstable partner that might go out of business may cause you a lot of problems and inconveniences.

Partner with a Payment Gateway Provider

It is essential to partnering up with reliable payment gateway service providers. Thus, it empowers the brokers to compete effectively in the market, as well as having different deposit and withdrawal options to make convenience for the clients. 

As you will be dealing with money night and day & the first thing your clients/forex traders are going to do before or after signing up with you, is depositing the money into their trading account. They are going to make withdrawals as well occasionally. You need a Payment Gateway that helps you manage the deposits and withdrawals as per your target clients. You must have researched their preferred payment mode like Credit Card, Debit Card, Bank Transfer, PayPal, Neteller, Skrill, etc.

Choosing a Trading Platform & Right Technology Providers

The trading platform is the core element is where the actual trading happens. You need to obtain a trading platform license in order to connect to the Forex market.

There are a few trading platforms available from third-party developers: MetaTrader 4, MetaTrader 5, UTIP, cTrader & more. 

The prices for these products vary. For some you will pay a monthly subscription fee, some are volume-based and others just charge a one-time fee. Prices range from just $1,000 to $100,000. If your chosen platform does not come with liquidity providers, you would need to account additionally for the establishment of partnerships with prime brokers and large banks.

MetaTrader 4 is the most widely used trading platform but this is also the priciest platform. Typically, it would cost around $100,000 to start with but might need some additional development, bridges, and so on added which will drive the cost up further. It is possible to go for an alternative such as the UTIP trading platform, which comes at the price of $15,000. Also, UTIP allows for quick and easy integration of binary options trading, a niche trading instrument that has been growing rapidly over the last few years.

There are quite a few options and it is certainly advisable to examine the profile of your target trader before deciding on the most appropriate trading platform for your brokerage.

This process is not so time-consuming and may take a few weeks. It is suggested to begin it as soon as possible, as your platform has to be well-tested before being brought to market.

To get your Forex brokerage off the ground you will also need a technology provider that offers innovative technology to ensure you have a competitive edge. The only way to get your brokerage to market without a technology provider is to do what Forex brokers did a few decades ago, which is paper trading. Conventionally, each client would have to call into place, modify, or close a position & which is obsoleted.

Beginner Forex Brokers should look for flexibility in their technology provider who can grow and scale with them as their needs change. Today, there is a wide range of providers that offer turnkey solutions for technology as well as the end to end solutions. Technology providers offering trading software, bridges, CRM, and risk management tools.

The brokers that are the toppers in the marketplace have risen over the last few years, simply due to the fact that they carry minimal risk. An advanced risk management system will surely significantly minimize any potential for loss to the broker, in addition, it provides a good trading experience for the broker’s traders.

Also, proper client management through client relationship management tools (CRM) will empower the broker to take every inch of control under one screen and managing the clients & business effectively. Thus, it increases the efficiency of business along with reputation plus the chance of spreading your network in the crowd.  

Make Your Online Presence

Nearly every modern business needs a good online presence and in the Forex market particularly, this is essential. Trading is executed online and the same applies to client registration, verification, and even depositing. 

The best advice here is to subcontract to a company that has experience with the development of sites for Forex brokers. Otherwise, you risk spending a fortune on a webpage that does not convert visitors into clients. Better opt for a tried and tested format, at least initially.

This step can be undertaken parallel to setting up a company, and going through the regulatory process. Usually, brokers tend to start with a light ‘Beta’ version of the website and gradually update it with additional functionality and value-added features.

Soft Launch

Before you actually start a forex brokerage business, the best suggestion is to go with a soft launch. Make some trial sessions, test the whole environment & see if everything fits in the right way before you go live. Fix all the critical issues before you go live. Things to consider for soft launch –

  • Give early access to some pro-traders to test everything rigorously
  • Profile creation and edit
  • Deposit & withdrawals
  • Funds credit to the trading account
  • Live price feeds speed and accuracy
  • Order Placement & Execution
  • Account opening
  • KYC (Know Your Customer)
  • Slippage, Swap, Spread, etc. accuracy 
  • Promotional campaign analytics to assess what’s working and what’s not
  • The website is fully updated with all packages, charges, terms and conditions, disclaimers, etc.
  • Incentivizing traders with some rewards like Currency Balance for Trading Account.

Start your brokerage

Time to go live & start with as many traders as you can but don’t wait for some magical number like we would only go live when we have 100 traders. Start with whatever number of clients you could get after all the marketing efforts and build your business on that.

Choose a non-event day to launch to ensure the launch of your forex brokerage is smooth. Launching on high volatility day like on the first day of the trading week or event-day may not be the best option.

  • Keep a task action team ready to handle any issues or problems. They are more common than you expect.
  • Keep calm and don’t panic during an unprecedented event.
  • Keep a close watch on everything for at least the first 4 weeks.
  • Review everything at the end of every day and categorically check how many users were active, what pairs they traded into, their lot sizes, profit & loss, your earnings, what went wrong and if your team was able to address it, how much time did they take, etc.