Forex trading is big business. $5.3 trillion is traded every day in the Forex market and it continues to draw a growing number of investors who are attracted by its massive profit potential. Generally speaking, with effective risk management in place, profits and losses are virtually unlimited so it comes as no surprise that many brokerages have set up to claim their share of the market.
Launching a Forex brokerage is an exciting business opportunity, but as with any business, it makes sense in the first instance to do some groundwork on how to become a Forex broker and then compile a forex brokerage business plan which will include important aspects such as where to register your brokerage and what trading instruments you will offer.
You also need to think about whether you should open a brokerage from scratch or opt for a white label solution. Here’s a step by step guide on how to start a forex brokerage firm.
Opening a Forex Brokerage from Scratch
Setting up a Forex brokerage from scratch requires a large amount of start up capital as well as time and effort to set up the business. There are 6 important steps that should be followed.
-Define Your Target Market
-Ensure You Have Sufficient Capital
-Connect With a Liquidity Provider
-Partner with a Payment Processor
-Set Up Your Brokerage Operations
-Pre-Launch and Going Live
1. Define Your Target Market
It is important to define your target region first. Pinpointing the location of your customers will help you choose the best jurisdiction to register your Forex brokerage. This is important as in this line of business, licencing requirements differ from country to country. There are many jurisdictions for Forex companies, Cyprus for example which serves many traders across the globe, as well as others including FCA, BVI and Cayman Islands, etc, and a comparison of these will need to be made before making a decision.
2. Ensure You Have Sufficient Capital
The amount of capital you will need is usually set by the jurisdiction, but you should know that irrespective of their requirements, the cost of setting up a Forex brokerage is high, hence it is advisable to ensure you have enough money to cover your expenses, ideally for the first year of operations.
3. Connect With a Liquidity Provider
The key to a successful Forex brokerage is liquidity so connecting with a leading liquidity provider is vital. As you will need to offer your clients leverage, it is recommended that you connect with a reputable Forex liquidity provider with direct market access to all Tier-1 FX liquidity venues.
4. Partner with a Payment Processor
You will need to partner with reliable payment service providers to allow you to compete effectively in the market, as well as having different deposit and withdrawal options to make it as convenient as possible for your clients.
5. Set Up Your Brokerage Operations
This step includes forex broker website design, deciding what trading platform you will use and what additional services you want to integrate. You will also have to set up an office at a physical location with IT and financial personnel, customer support, sales and marketing teams and compliance.
6. Pre-Launch and Going Live
You should allow sufficient time to test the trading platform, payment processing systems, mobile app, and other technical aspects by a focus group of your potential customers before your brokerage goes live. This will enable you to pick up on, and deal with any concerns before launching for real. Once you have completed these steps and are ready with an effective marketing campaign, you are set to go live.
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