Over the past few years the opportunities and successes in the foreign exchange market have attracted a significant number of investors and traders. The growth in the number of Forex brokers during this time 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. The increased number of start-up Forex brokers over the last decade is evidence that more and more FX entrepreneurs are finding it more profitable to run their own businesses rather than continuing to funnel business to larger brokers via traditional IB arrangements.
The FX market space holds vast opportunities if you have ever thought of setting up your own brokerage and here are 6 major guidelines you should be aware of and follow before starting with your own FX firm.
1. Establishing a company
- Registering and licensing your FX brokerage company in a jurisdiction that is conducive to your budget and business requirements
- Opening corporate bank accounts for client deposits and company operations.
- Establishing an office, buying office equipment, etc.
- Hiring staff
2. Choosing a business model for your FX Brokerage
- Market Maker or Principal model: This is where the brokerage B-books (takes the risk on its own books) its clients’ trading activity.
- Agency or STP model: This is where the broker STPs (Straight Through Process) all of the trading activity to a reputable counterparty.
- Hybrid model: This is where the brokerage runs a co
mbination of the Market Maker and Agency models based on a certain set of risk criteria.
Another thing you will want to be sure of is that your setup supports flexible Introducing Broker (IB) and Money Manager infrastructures that include the necessary trading and reporting tools. The IB and money management programs are typically primary catalysts for boosting your transaction volume. . The IB model is the most common model used as the broker benefits from the business introduced by the IBs and in return the IBs receive rebates based on the trading volume of the introduced clients.
3. Transparency and Ownership
4. Liquidity Provider
The benefit of a PoP for the broker who cannot establish a direct prime broker relationship is that they get all the benefits that a PB offers such as margining, the ability to have your money in one place and dealing with a single point of contact. It is advisable for start-ups to know who the underlying Prime Broker is when dealing with a PoP. A strong PB will offer their clients deep reliable pools of liquidity across multiple liquidity providers at a low cost. When choosing a PoP, remember that it is very important to go with a regulated PoP that offers quality institutional Tier -1 liquidity and transparent execution.
6. Safety Of Funds
With Advanced Markets, you will be assisted by a qualified professional, who will be there to support you throughout your journey. Advanced Markets’ and Fortex’s cutting-edge technology and years of expertise in the industry will result in you receiving premium service during the entire process. For more information on starting your own brokerage and to download a brochure, please complete the form below.