Six steps to start your Forex brokerage business

Dayana Jones
Partner content

Daily trading volumes at the Forex market have passed the mark of $7 billion, and the total turnover of funds is approaching $3 quadrillion. These huge figures open up new opportunities for both traders and brokerage companies. So how does one start such a Forex brokerage company with the best chance of success?

Know your target audience

The “Know Your Client” policy is mostly concerned with the legislative aspects, but it is important for a broker to understand how a potential client looks and behaves in order to be able to tailor the services offered to his individual requirements. If we look at the statistics, the average Forex trader looks like this: age from 25 to 34 years old, less than 1 year of experience, gives about 3-4 hours a day to the trade. This is a collective image and it is important for new brokers to look deeper into this statistic.

In addition, the brokerage company must consider the characteristics of the region, the language groups of the target audience, etc. An in-depth preliminary market analysis increases your chances of ultimate success.

Exploring the legal intricacies

Forex broker regulation varies from country to country. In some jurisdictions, the requirements are quite stringent, while other states create a favorable environment for newcomers to the market. Consider both the location of your company and your business model. Experts recommend choosing jurisdictions that create the right conditions for business development and at the same time are characterized by reliability.

Choose accessible payment gateways

The convenience of depositing and withdrawing funds is an important condition for traders, so the connection of payment gateways affects the number of users. The range of possible solutions is quite wide, but only reliable providers that guarantee safe payments should be connected. In addition, do not forget about the number of added payment options — for example, reputable companies offer their users to deposit by bank card, bank transfer, or e-wallet. The more payment options added, the better.

Solve the software challenge

In addition to the website, the development of software infrastructure for the Forex brokerage business includes other important components. For example, Trader’s Room allows clients to deposit and withdraw funds to their trading account, track trading history, invest in a PAMM account (if such service is available), etc. A trading platform is a trader’s main tool used to place buy and sell orders for assets. Optional components can include services such as PAMM and liquidity aggregation module. 

Choose a business model

For a transaction to be executed, there must be a counterparty in the chain of execution: if someone buys an asset, then someone must sell it. Forex broker models differ in who that counterparty is and where it comes from:

1. The A-Book model is a model of operation in which all trader orders are passed by the broker to a liquidity provider, who then redirects them to the interbank. The broker’s income is a commission for the carried out deals volume (as a rule for 1 lot) or markup on the spread, so-called markup. In this scheme the broker is just an intermediary, the final counterparty is the traders, whose opposite orders are sent to the interbank, or liquidity provider.  

2. The B-Book model is a model of broker’s work, in which the broker himself is a counteragent of the deals. In other words, traders’ trades are not led anywhere outside of the broker’s platform itself. 

3. But brokers who operate on a hybrid model can usually afford the most flexibility in dealing with client transactions. 

Choose your approach to liquidity 

At first glance, the Forex market has absolute liquidity because we are talking about fiat currencies. As far as brokerage companies are concerned. the notion of liquidity means the depth of the stock market. The more buy and sell orders there are, the higher are the chances of a trader to sell or buy assets at market value. Reliable liquidity providers connect your company’s stock cup to the largest banking and financial institutions (BNP Paribas, Barclays, Goldman Sachs). You can also choose to use specialized software and connect independently to the liquidity providers of your choice.

Soft-FX will be happy to advise you on how to launch your own Forex broker with a solid technological foundation.

Six steps to start your Forex brokerage business

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