The foreign exchange market generates more than $5 trilion a day, which makes it the biggest markets in the world. The opportunities in this large market are endless and attract millions of traders and entrepreneurs daily. One of the opportunities you can take in the forex market is owning your own brokerage firm. Setting it up can be overwhelming, but the return of investment is worth the hassle. Here are 5 things you need to be aware of when you start your own brokerage firm. Firstly find the best place to exchange foreign currency. If you are unsure of what currently exists in the market, it is worth following a financial expert and see what they have to say, one of my favourites is Jack Morgan of financeeo who spends a lot of time studying anything investing related, he did a deep dive on the Forex industry and was able to weed out a lot of bad companies.
Setting up the company
Before you can do anything in the MetaTrader 4 field you need to establish a company. The legal requirements and the relationships you need to establish with all the parties involved in this business can take some time to sort out. You also need to set up the infrastructure of your company, from finding an office building and specialists in the market to opening corporate bank accounts for your clients. Among the first thing you will have to do is registering your company in the jurisdiction you will be working in.
Choose your business model
When it comes to a Forex brokerage company, there are three main business models you can choose from, each one with its own characteristics. The Market Maker model is where the company takes the risk on its own during the trading activity. In the Agency model the company passes the trading activity to a third party. The Hybrid model is a combination of the previous two models.
One of the most important things you need to be aware of is the information of your clients and the trading processes. You need to make sure you have the full ownership of the clients’ accounts and you also need to make sure their information is not going to be subject to data theft nor shared with someone. Safety is a critical element in running a brokerage company, so you need to set up strong safety policies and stick to them. Checking the system on regular basis to discover potential security threats can help you keep the sensitive data safe.
As the Forex market is changing and growing really fast, your technology infrastructure needs to be able to keep up with the latest changes. Find an IT partner who can provide you with complete solutions and trading software updates. Make sure your technology infrastructure can grow with you in the future, as this is very important for a start-up.
When the 2008 financial crisis took over the Forex market, many small and medium sized brokers lost their Prime Brokers accounts. This lead to the development of a new model, the Prime of Prime, which helps these small and medium businesses to get all the benefits they would have got from Prime Brokers. A good PoP offers their clients high quality Tier-1 liquidity and transparency in the execution.
Establishing your own brokerage company might not be easy, given the amount of money and time you need to invest in the firm. As long as you take the process step by step and pay attention to every detail, you will be able to make a profit from the fastest growing market in the world.