A quick overview
There are a lot of questions you should ask yourself when going into a forex brokerage business. Whether you are an entrepreneur, a head of equity brokerage or a head of a bank, similar questions will come to your mind quickly. What do I do first? How do I become the best forex broker in my market? Which forex regulation do I choose? Etc etc. There is, however, a good, basic list worth going through to make sure you have all major things figured out. Online forex brokerage is not only about having the best liquidity provider or setting up a regulated company as much as these tasks are crucial. Below you may find an experience-driven to-think-over list before you move ahead.
1. Choose the right people
It is the most important thing to start with – who will be doing this? Getting the right people into the equation can be more important than vast amounts of funding, as these people will be spending it. It might be enough to do it as a single person, when all planned activities will be outsourced – but here it is important to check if you have been enough time into the business to avoid pitfalls. If you are planning to expand the business, another thing to consider is if to take over expensive people from your competitors, who have been in the forex brokerage services, or start with experienced team out of a different field of finance. The former will give you a bigger change to get on top of what matters now, the latter will allow you to take am non-standard approach to the business. With the former you might avoid common mistakes, with the latter you might conquer a market with a “blue ocean strategy”.
2. Choose your market and target group
In theory it is enough to prepare a good PPC campaign (pay-per-click), put enough budget from a credit card and let it go. Unfortunately marketing to general audience will be very expensive and unsuccessful. Currently keywords like “mt4 broker” or “forex trading” will be very expensive in google auctions and the client might not necessarily consider you as his/her ultimate choice. That is why it is important to define the market first. It might be even better to try finding an even smaller market for a proof-of-concept, where you will spend a defined small amount of money and see if your strategy works. Sooner or later you will need to attack your market, and it is good to know which one it is. Is it your local community, HNI’s from your district or maybe middle class from the whole country. The better you define it, the easier it will be to craft a customized solution for them using proper white label providers, well-designed website and properly targeted campaigns. This will also allow you to answer further questions regarding technology providers, offer for the client’s, type of marketing campaigns.
3. Choose your strategy
Once market and target group is defined, creating a strategy should be a next step. Strategy should incorporate many aspects but Marketing, Client offer and Risk management would be the key points.
How is the target group going to be reached? Considering the costs offline strategies might not work in certain countries, while in others this will be the main way to reach your local community. Sometimes it might be enough to do marketing to your existing client group, while in other cases a branding campaign is necessary so that potential clients start recognizing your trademark before they are approached by sales. The more detailed the strategy the easier it is later, so defining specific media and research on their prices is important. Also plans about creation of websites, landing pages, gadgets and promotions should be taken into account.
b. Client offer
While reaching the customer is important, you also need to know what your target group will be offered. Will they trade on a few instruments or will they appreciate a whole array of them?
Will they want to trade on fixed or floating spreads? It is good to do a market comparison with competitors and check their spreads and quality of execution.
The same applies to any affiliates you might need to approach. Rebates for introduction need to be defined and conditions to get them to protect you from unfair business partners.
c. Risk management
One of the most important issues is how you are going to make money and what type of risk will the brokerage take. There are as many risk management practices, as there are brokers on the market. The most well known are full A book and full B book, but hybrids are usually the most common. These hybrids allow you to take the most from the potential of the market. In this case not only your risk appetite needs to be taken into account. Defining your client groups, their experience, your cash levels should also take place. It might also be worth considering to take one approach in the beginning when risk is not what you seek while starting a new venture, while gradually taking on additional risk when developing the enterprise.
4. Choose your jurisdiction
How to regulate your business is one of those questions that should be asked multiple times before answering. While strategy, providers and target groups can be changed relatively easily, choosing a jurisdiction is like marriage and it will never be easy to change your spouse.