How to Become a Forex Broker
If you have decided to invest time and money to become a Forex broker, the following information will help you get started.
Your new brokerage company set-up plan would include:
1. Registration of your company in a local or offshore jurisdiction.
2. Application for a Forex broker license at the U.S. Security and Exchange Commission (SEC) if you plan to do business in US.
(If you want to open and operate outside the US, request an information kit from your local financial authority).
3. Opening a bank account within the jurisdiction to collect funds from clients.
4. An application for receiving online payments, if you’ll be accepting online funding.
5. Preparation of legal documents, including dealing manuals & agreements, anti-money laundering policies, conflict of interest policies etc.
6. Pay registration fees and meet a minimum capital requirements for opening a brokerage business (Broker-dealer applicants and registrants must have and maintain the minimum net capital required by Securities and Exchange Commission Rule 15c3-1 and comply with SEC Rule 15c3-3 governing customer protection, reserves and custody of securities).
8. Find liquidity partners, clearing company(s) that will clear your trades. (A clearing company will look for your to deliver a certain trading volume per month: e.g. a total amount of lots your clients will be able to trade each month).
Every step will include a set of documents to be prepared as well as qualifications to be passed. The package of requirements will depend on a jurisdiction where you choose to register a company.
Registrants must be prepared to pass thorough background investigation, pass examinations on general securities principles and state securities laws (NASD series 7, NASD series 63, 66). Among others, the following criteria are considered during registration application:
– financial solvency;
– conviction of a crime;
– evidence of past inequitable or fraudulent business practices in the sale of securities.
Related documents and links:
Guide to Broker-Dealer Registration by U.S. Security and Exchange Commission (SEC)
Registration Overview for Retail Foreign Exchange Dealers, IBs etc. by National Futures Association (NFA)
Forex Brokerage Roadmap (pfd) by Boston Technologies
Approximate costs of Starting own Forex Company
1. Company registration – $2000
2. Opening a corporate bank account – $500 – $3000
(To be noted that larger banks might require a minimum account balance (deposit) to be made and maintained throughout operation. The amount can vary from $50,000 to $500,000 USD).
3. Opening a physical office (if planned) – $10,000 – $30,000
4. Developing a website – $1000 – $25,000
5. Choosing a trading platform – $5000 – $150,000
(MT4 platform license would come around $100,000 – 150,000+/year. While IB/White Label solutions could result in $0 fees).
6. Hiring staff (support, IT, legal, other) – based on your local salary rates
White Labels and IBs
If you aren’t ready to buy your own Trading platform license, you can start with an IB or a White Label solution from a Prime broker (your Clearing company).
As a White Label you’ll be offering trading services under your company name.
A Prime broker will customize the interface and platforms for you, so that you’ll be running under your own logo.
Your Prime broke will also arrange a trading server for the platform and clearance of all clients’ trades for you. You can also leave the handling of deposits and withdrawals for your Prime broker, so that all you need to do will be: marketing (to bring new clients) and customer support (to keep those clients).
As a White Label you’ll be able to customize your own fee structure and dealing spreads to earn higher income.
As an IB (Introducing broker) you’ll be sending/referring all clients to your Prime broker, where they will eventually open a trading account. As an IB your goal will be to refer as many clients to your Prime broker as possible, because it’ll directly affect the income stream (commissions) you’ll earn for each referred client.
For this type of business you’ll need no licensing or registration. All you’ll have to do is find and refer clients, which can be done via any website (most common way), word of mouth, including conferences and seminars, by utilizing own existing client base etc.