Pros and Cons of Being a Broker

You do not need considerable knowledge in brokerage business but there are five important steps to follow.

Photo: FM

Starting a brokerage firm is widely believed to be expensive and time-consuming. Because of this common misconception, people often choose to become an IB (Introducing Broker) instead of taking a chance and trying their luck at achieving genuine success.

Here is a step-by-step guide on how to start a forex brokerage firm easily

Work out your corporate framework

First you need to register your company. The registration process is quite clear and simple, although it has its pitfalls.

When it comes to launching new ventures, one of the key points is the choice of jurisdiction of your company.

Before settling upon a particular region, you need to consider which jurisdictions offer you the best conditions for doing business.

The most common choice is offshore. You can have a legal entity registered in, say, Saint Vincent and the Grenadines.

The main advantages of having offshore companies are no taxation, flexible legislation, and support of foreign businesspeople at all levels. Rather good opportunities for doing business, right?

However, running an offshore company has its own drawbacks, such as certain difficulties with signing up for bank accounts and payment system providers.

To avoid such problems, you can open a company in a regulated jurisdiction (for example Labuan region of Malaysia), it will be much more expensive, but will show clients and business partners that you are a serious company that can be trusted.

Get a trading platform

That is an easy one! For sure you are already familiar with MetaTrader, the world’s most popular trading platform, used by the vast majority of brokers.

MetaTrader’s popularity is due to its reliability, comprehensive trading conditions settings, tools for technical analysis and familiarity to traders from all over the world.

There are two versions of MetaTrader: MT4 and MT5. Both platforms are designed for Forex trading, financial market analysis and use of expert advisors.

Connect to a liquidity provider

Next you need to think about your liquidity provider. What is liquidity and why is it important? A broker’s income is the difference between the spread of their liquidity provider and the end spread for traders.

That is why it is important to find a stable liquidity provider with the tightest spreads. It allows you as a broker to hedge your risks.

There are also brokers who themselves act as the counterparties in trades of their clients without the participation of large market makers.

In this case, a broker profits from traders who “blow” their deposits, which sometimes disturbs clients as the broker seems to be interested in their failure.

And there is a risk of professional traders bankrupting the broker with large earnings.

The best of both worlds is a balanced risk management strategy. For example, passing high-volume clients to a bigger liquidity provider, while acting as a market maker for those who trade small volumes.

Brokers usually combine sources of profit from the trading activity of their clients and rarely work exclusively with one model.

Setup an online Backoffice and CRM

It can be said that the key component of a successful modern brokerage business is an online Back Office system that allows clients to manage their accounts and funds, and brokers to work with their clients.

It helps brokers manage the entire client relationship life cycle in one place.

While choosing a trading platform might be easy – after all, there are not so many options to choose from – picking a Back Office and CRM system might be tricky: there are a lot of options on the market. But they are not created equal.

A common mistake is to try to use a general-purpose CRM system.

These CRMs are not really fit for brokerage companies – after all, managing goods in warehouses and their logistics is quite different from managing trading accounts.

Then there is a variety of brokerage CRM systems on the market, but most of them were built by brokerage companies for themselves and the decision to sell them to other companies was an afterthought.

This makes these CRMs really suited to only one way of doing business, customization options are lacking, and every slight change requires expensive development projects. Setup time for such CRMs may take several months.

Use modern brokerage SaaS CRMs. These CRMs were built with startups in mind, they include all the necessary options out of the box and can be launched in a matter of days.

Create a website

Of course, for the good brokerage business, it is necessary to create a functional website. Nowadays you can easily do it yourself or seek professional help.

That is all! Only these five steps separate you from success in the financial market and will help you build a new business of your own.

Reprinted from financemagnates, the copyright all reserved by the original author.