Have you ever thought what you need to open an fx brokerage shop? Forex brokerage setup can be a daunting task, as retail brokers is a niche industry and information is scarce. There are a lot of pieces in the puzzle, but I think the easiest way to break things down is to make a little recipe you can use in your journey.
PIECES IN THE PUZZLE
Like setting up any financial hub, there are a lot of moving pieces that need to eventually be put nicely together if you’re thinking of start up on your own. You’re dealing with OPP (other people’s money) so you have to be regulated in a certain way (more on this later on). Innovations in retail fx sprouted up as a result of technology, retail trading without technology facilitating orders and managing your back office is not possible. Technology is the most important aspect of the puzzle since that’s how you’re interacting with your customers, Introducing Brokers and the rest of your partners. There is a lot of noise in every direction you look. Let’s soften it a bit for you.
- 1+ Platforms
- 1+ Liquidity Partners
- 1 Bridge Provider
- 1 Back Office Management
- Sprinkle of analytics
The technology you choose to employ will affect the types of customers you see, allow you flexibility in your business operations, help solidify the partnerships you create, and overall be the backbone of your business. We’ll start with the most important piece: Your trading platform, most likely Metatrader (some industry insiders suggest 80% of brokers use MT4).
The more platforms you employ, the bigger market scope you have. But start with a manageable workload, and add on if you want to have access to more customers.
MetaQuotes builds MetaTrader: MT4 and MT5. In case you didn’t realize, it’s currently acting as the Microsoft of the 90s when it comes to Proprietary trading platforms. There are a few other trading platforms like Ctrader and maybe a broker’s own proprietary platform, but MT is mostly what is used. Your proprietary platform will define your customer base and should complement the vision of your brokerage. Your platform will be your user’s window into opening and closing positions and open your trader up to unique add-ons, cTraders’ cAlgo, for example.
The platform is the backbone of the user experience of your brokerage, but there is a lot still going on that you need to consider.
Your greatest partner. These are your avenues into liquidity and will help you secure ties with your interbank.
Your business is contingent on spreads, commissions, and maybe most of all on the access to credit an interbank will provide you. Liquidity provider: The firm that will help set up a direct link from your Prop Platform to interbank liquidty.
Liquidity is all about access to credit. The more access you get, the better your chances are of turning profit. Getting the best access is largely based on circumstance considering the bank is taking on risk giving you credit. Picture trying to get into a busy club in a major city: Getting in is all about getting past the bouncer. Would he let you in if he didn’t know you and you had ten guy friends? Probably not. What if you had a pack of girls? Ok. Maybe. Now what if you and the bouncer went way back? He would let you in no matter who you brought in (don’t push it and bring your football team along with you!). Access to credit is similar in the way that the bank needs to know you and your capabilities in order to get your foot in the door and get suitable credit. LPs can also help you out with this. If an LP like Boston Prime (link) vouches for you, you can expect a warmer reception.
Look here for steady, reliable technology that won’t break. This is the avenue all positions must cross to and from the bank.
Bridges are the middle men between a Prop Platform and interbank liquidity. Sometimes LPs can recommend great providers for you, sometimes it can be the other way around. Like any bridge, your goal should be to find a stable one that will let uninterrupted flow of commerce commence. PrimeXM is a great example of a bridge provider who a lot of LPs trust. An LP may call upon a bridge provider on a broker’s behalf to find out if a bridge between Broker X and interbank is possible.
Competition is pretty fierce in this sector, and thankfully brokers have been generally happy with what bridge providers have to offer. The nice thing about these guys is they’re such a crucial player in the FX ecosystem that they usually can recommend other pieces of the puzzle to you and help you make better informed decisions. We stress that you do your research, but bridge providers (and LPs) have an incentive for you to conduct business, so they will point you in good directions. A few examples of bridge providers are Boston Technologies, Lmax, and PrimeXM, we are technology guys so our pick has to go with PrimeXM as they have the lambourginni when it comes to Bridges.
So now we have the ingredients that will allow a trade to be successful opened and closed, at scale. But there is a lot still missing in the puzzle.
Back Office is all about dovetailing necessary business operations with convenience and customer empowerment.
Having more than 100 active traders can make life difficult when you need to manage all their needs in timely fashion. Traders do not want to wait to hear back from brokers on how to do simple actions like deposit funds into their account, they want self-service. And the broker needs an eye into it’s business. This is where the Back Office comes in. If you didn’t even consider Back Office you would have all the technology you would need for one of your traders to make a EUR/USD cross. But how would they put money into their account? Once the trade is made how would they withdraw profit? Platform, LPs and Bridges make trading possible, but they don’t make broker success any more likely of occurring. A trader expects their trade to technically work, but that won’t win them over. Back Offices successfully help you automate administrative tasks that your traders want done quickly, give you invaluable analytics on your traders, help manage sales and marketing tasks. A good Back Office will allow you to run your operations efficiently and help you scale as you bring on more traders.
Back Offices also integrate into your platform and can successfully be your window into all the other technology pieces. In a market where competition is so fierce, you can gain a wonderful reputation in the trading community by being the most convenient broker to work with. To be convenient on a large scale requires automation. Accounts can be opened in minutes, not days. Deposits can happen seamlessly, not lagging in time. Users can help themselves and not have to call you. See the win/win?
MT4 comes with its own CRM, but brokers and traders alike hate it because it’s so basic: It does not even offer a single place end user can go to look at their account balance, withdraw money or ask a question. All the things a trader needs. All brokers who use this CRM have to segment roles for various business dealings, rather than centralize day-to-day operations.
We’ve been around for long enough to know the importance of technology and your back office. If you need assistance in sorting out the details, please contact us so we can be of help.
This information was intended to be a mile wide, inch deep. We’ll keep diving into every aspect in more detail, but if you desperately want to know more about anything specific, let us know and we can make it a priority. Happy hunting!