Your startup capital will depend on business model and jurisdiction you will select your brokerage to operate in. Initial investment may very between 50,000 USD to 1.5 MLN USD if you need to comply with regulatory capital requirements in certain jurisdictions.
As in any startup, you may need to wear many hats in the beginning to get the business off the ground. As you prove the concept, you will need to hire the following staff:
1) Compliance and onboarding (most of it can be automated, however, human review is required for some application processing)
2) 2-3 dealers that will monitor and manage the risk in case you decide to deploy a market maker model, or this can be outsourced
3) IT administrator to administer your server and network (server administration can be handled by a service vendor if you purchase a white label solution)
4) Customer support
Depending on the jurisdiction you are operating in and countries you solicit clients from, your typical running costs may vary between $5,000 usd per month in fixed costs for an offshore registered online retail brokerage to upwards of $100,000 USD per month in fixes fees for a brokerage operating in top tier jurisdictions.
Most popular retail FX trading platform in the world is MetaTrader 4, or MT4 (and Metatrader 5 is a new generation of MT4). Platform offers algorithmic trading capabilities within its integrated development environment.
There are other commercial platforms available, but companies operating them are much smaller in scale.
Many large, well-established brokers have their own in-house built platforms which are expensive to develop and maintain.
Depending on how you are planning to solicit clients, you may or may not need an office. If you are planning to fully rely on online marketing, the office might not be required.
However, if your plan is to do seminars and convert clients onsite, you will need a class A office: blog.advancedmarketsfx.com/setting-up-an-office-for-your-fx-brokerage
Typical profit margins for retail FX brokerage is 28.81%. That is almost double of average profit margin for US firms across all industries.
Leverage that FX brokerage can extend to its client is governed by the regulator that is overseeing the brokerage industry in the country where broker is licensed.
Post global financial crisis of 2008, there is a tendency in most jurisdictions to limit and lower leverage (ESMA in EU, Dodd Frank in the US).
If you are operating from the offshore jurisdiction, you may not have any leverage restrictions, however. blog.advancedmarketsfx.com/fx-leverage-globally
Fx Market has a lot of unique terminology that you will need to learn in order to understand and navigate the market. Start familiarize yourself early: blog.advancedmarketsfx.com/fx-glossary-the-ultimate-dictionary-of-forex-terms-you-should-know
Yes, you can sell your brokerage to a larger financial firm, private equity firm or a banking institution. You can expect 3.38x revenue multiple on average: blog.advancedmarketsfx.com/fx-brokerage-owner-what-is-your-exit-strategy
There are a few considerations when selecting were to register your clients. Firstly, you need to start with the country where most of your clients reside and
you have a plan to solicit clients from. This will naturally be your top choice.
If you have budget constraints, you may register and license your FX brokerage in offshore jurisdiction, however, keep in mind that this will prevent you from openly soliciting clients outside of this jurisdictions.
Most of the time, budget and regulatory climate are the major driving forces behind the choice of jurisdiction to register. Advanced Markets specialists have helped over 500 brokerages to get established in the past 10 years and can guide you in your research.
Banking is the biggest pain point for fx brokerages as in most jurisdictions FX is considered a high-risk speculative investment and is heavily regulated. Banks generally favorably look at the companies that do have financial services license. It is easier to open a bank account in the jurisdiction where your company is registered/licensed at.
Depending on the type of license you hold, banking solutions available to you may vary in terms of quality and fees.
Note, that in most jurisdictions it is a requirement as well as a widely adopted best practice to keep company operating account and client money accounts separate.
Advanced Markets specialists have helped over 500 brokerages to find the right banking solutions through our network of partners in the past 10 years and can guide you in your research.
Mainstream CRMs may take a great deal of time and effort to integrate with FX trading ecosystem. Most FX brokerages either use commercial CRMs that are built for brokerage businesses or develop their own.
Advanced Markets specialists have helped over 500 brokerages to find the right CRM solutions through our network of partners in the past 10 years and can guide you in your research: blog.advancedmarketsfx.com/traders-room-and-crm-for-your-fx-brokerage-101
As the number of accounts grows, you will need to deploy a call center to and 24/7 customer support team to monitor trading environment and answer customer's queries. You can either do it in house, or outsource.
All traditional online and offline marketing tools are available to Forex marketers.
Traditionally, forex brokerages do a lot of search engine advertising, banner ads and affiliate marketing. In recent years, sports sponsorships became very popular
as brand marketing tool. Something to keep in mind is that recently tech companies like Google, Facebook and Twitter started doing additional checks and their own licensing verification for financial brokerage firms, therefore, you may not be able to advertise your services using Google and others in the countries were you are not licensed.
Most retail FX brokerages offer managed forex accounts. Technically, this is facilitate by plug-ins to the server that automate deal allocation and performance calculations.
Introduction of managed fx programs has proven to boost FX brokerage's revenue by 30% on average.https://blog.advancedmarketsfx.com/what-is-the-best-mam-system-for-mt4-mt5
1. Legal (Incorporation, License, Bank Account, Payment Processors)
2. Technology (Hosting, Trading Platform, Bridge or Gateway, Aggregator, Plugins)
3. Liquidity for the STP Model or a reliable Price Feed for a B-book model
4. Your Web Site + Client Portal (Or Traders Room)
5. Marketing... Check this for further information: blog.advancedmarketsfx.com/fx-leverage-globally
As with any startup business, the failure rate is high (over 50%). Retail FX businesses that do not fail are the ones that pay attention to market risk and mitigate it and firms that can figure out how to successfully scale the business in stringent regulatory environment.
Regulation and market risk are the two biggest threats to your brokerage business. Flash crash events can have a catastrophic effect to your business. Regulations can change unexpectedly and if you are not prepared for it may drastically shift your business in the unprofitable territory.