Your Own Forex Brokerage

The foreign exchange (FX) market now generates more than $5 trillion a day, making it the largest market in the world from a volume standpoint, surpassing any other market in the world.*

Over the past few years the opportunities and successes in the foreign exchange market have attracted a significant number of investors and traders. The growth in the number of Forex brokers during this time is attributable to the fact that they have realized the tremendous revenue opportunity that is there for them when they own a brokerage rather than simply introducing clients. The increased number of start-up Forex brokers over the last decade is evidence that more and more FX entrepreneurs are finding it more profitable to run their own businesses rather than continuing to funnel business to larger brokers via traditional IB arrangements.

The FX market space holds vast opportunities if you have ever thought of setting up your own brokerage and here are 6 major guidelines you should be aware of and follow before starting with your own FX firm.

1. Establishing a company

Some of the major hassles every new broker faces when opening their own brokerage are the initial work involved in establishing a company and the legal framework surrounding it, establishing corporate banking relationships and developing the firm’s workflows and processes. Here are a few of the most important steps that will need to be given a great deal of thought when setting up your own brokerage:

  1. Registering and licensing your FX brokerage company in a jurisdiction that is conducive to your budget and business requirements
  2. Opening corporate bank accounts for client deposits and company operations.
  3. Establishing an office, buying office equipment, etc.
  4. Hiring staff.

2. Choosing a business model for your FX Brokerage

In general, there are three business models that an FX brokerage can adopt:

  • Market Maker or Principal model: This is where the brokerage B-books (takes the risk on its own books) its clients’ trading activity.
  • Agency or STP model: This is where the broker STPs (Straight Through Process) all of the trading activity to a reputable counterparty.
  • Hybrid model: This is where the brokerage runs a combination of the Market Maker and Agency models based on a certain set of risk criteria.

You will want to find a counterparty/ technology partner who is flexible enough and has a structure in place that is adaptable to any business model that the retail brokerage would implement.

Another thing you will want to be sure of is that your setup supports flexible Introducing Broker (IB) and Money Manager infrastructures that include the necessary trading and reporting tools. The IB and money management programs are typically primary catalysts for boosting your transaction volume. . The IB model is the most common model used as the broker benefits from the business introduced by the IBs and in return the IBs receive rebates based on the trading volume of the introduced clients.

3. Transparency and Ownership

When selecting a partner to deal with for liquidity and technology, choose the one that provides the most transparency as they will be giving you the most complete information for trade reporting and execution on a real time basis. Make sure that you will maintain full ownership of the clients and that their account details will not be shared with anyone, especially with your competitor (in the scenario where you are a white label of a retail brokerage firm, you will always have this risk).

4. Liquidity Provider

Following the 2008 financial crisis, Prime Brokers (PBs) have been very selective in establishing relationships and as a result, numerous brokers lost their tier 1 prime brokerage accounts. PBs are happy to deal with multinational corporations, hedge funds and larger brokers but the same cannot be said for small and medium sized brokers that are not significantly capitalized. This has resulted in the evolution of a new model called Prime of Prime (PoP).

The benefit of a PoP for the broker who cannot establish a direct prime broker relationship is that they get all the benefits that a PB offers such as margining, the ability to have your money in one place and dealing with a single point of contact. It is advisable for start-ups to know who the underlying Prime Broker is when dealing with a PoP. A strong PB will offer their clients deep reliable pools of liquidity across multiple liquidity providers at a low cost. When choosing a PoP, remember that it is very important to go with a regulated PoP that offers quality institutional Tier -1 liquidity and transparent execution.

5. Technology

You will need a partner that offers innovative technology in order to ensure you have a competitive edge. New brokers should look for a flexible technology provider who can grow with them as their needs change. There is a wide range of providers that offer full turnkey solutions for technology as well as entire end to end solutions to new brokerages. Technology includes trading software, bridges and risk management tools. Over the last few years we have seen a number of STP brokers taking over the market space due to the fact that they carry minimum risk and don’t have the hassle of a dealing room. An advanced risk management system not only minimizes the potential for loss to the broker but also offers a good trading experience for the traders.

6. Safety Of Funds


While it is not absolutely necessary, you would be wise to do establish a relationship with a regulated broker to ensure that your funds are required to be segregated as that will provide a level of safety that otherwise would not exist. Regulation information should be available directly on the broker’s website and also on the regulatory agency’s website (ASIC, FCA).

So, if you really do have the desire to establish your own brokerage, I advise you to consider all of the factors mentioned in order create a reliable and successful brokerage. This provides an opportunity for entrepreneurs to potentially profit from the fastest growing market in the world.

With Currency Hedger, you will be assisted by a qualified professional, who will be there to support you throughout your journey. Currency Hedger’ and RFGQ’s cutting-edge technology and years of expertise in the industry will result in you receiving premium service during the entire process. For more information on starting your own brokerage and to download a brochure, please complete the form below.

* BIS Triennial Central Bank Survey, Monetary and Economic Department http://www.bis.org/publ/rpfx13fx.pdf

If you have questions or comments regarding this topic, please contact us – We are always happy to help you!

  1. PSP (or E-Wallet)

PSP examples include Webmoney, Qiwi, PayPal, Skrill, Neteller, Yandex and others. An FX Offshore Broker needs to open a wallet in the selected payment system and place it on the website and also in the Trader’s Room (Link to the Article about Traders Room)

Fees: Can be dramatically different between currencies. Make sure to get a detailed breakdown. One PSP was charging my client MDR 15% on all USD wires.

Average MDR is fixed fee (EUR50-125) or 2% B2B, 4.5% C2B (whichever is greater)

  1. Crypto Deposits (can be made to PSPs, EMIs, less common to Banks)

Over the past few years the amount of funds transferred in crypto has grown dramatically. There are quite a few automated solutions from OrangePay or Cryptonator, as examples.

Fees: Generally higher compared to regular wires, literally no fees if transferred to offshore FX brokers wallets

Other :

VISA/MASTERCARD – This option requires the FX broker to have a company with Bank Account in Europe and have an agency contract with an offshore entity.

The European Company acts as a payment agent to receive funds. This type of structure has recently become difficult to set up due to the fact that less and less banks are willing to work with FX deposits.

Payment Aggregators: (Winpay, OrangePAy, Interkassa) may save a lot of time dealing with different PSPs and are often used by start up brokerages

Checklist of the questions you should be prepared to answer:

  1. Proof of URL domain of the company
  2. What is the average number of payments per month to the account?
  3. From which jurisdictions you expect to receive incoming funds?
  4. What will be the source of these incoming funds?
  5. Which are the most important business partners of your company?

What are the biggest struggles :

  • Credibility of the financial institution

It may sound like an oxymoron, but Offshore FX Brokers are more likely to use unlicensed financial institutions that have a higher risk of failure. Desperation combined with a limited choice of providers are leading to less strict due diligence and as a result – a loss of money. You are already running a high-risk business and it is super important NOT to settle with an unlicensed payment solution

  •  Cost

I put the cost below credibility for a reason. Low fees are attractive but they also act as a red flag. $5k in monthly savings may cost you an entire company deposit. Are you willing to risk it?

The cost of payment solutions is a sensitive topic that some FX Brokers tend to ignore. I often look at SYOB business plans and rarely see proper expenses recorded for the deposit/withdrawals. Start-up offshore FX Brokers should consider a 5-10% expense for all incoming and outgoing wires.

  •  Volume of transactions

Some financial institutions may experience technical issues or a system “overload”. FX Brokers have to provide a few alternative solutions to avoid clients complaints.

  •  Payment providers/financial institution high attrition rate

Legal mergers, acquisitions, license suspensions and so on are more common among the types of financial institutions that offshore FX Brokers will be using. The only solution is (1) diversification and (2) continual monitoring of news about your partners.

Common Sense Tips:

  1. FX Brokers should not keep all funds in one place (Bank, PSP, EMI). The average FX Broker has over 6 working solutions and is always in search of new
  2. Go local. FX Brokers must look at their client-based preferred ways of depositing/withdrawing
  3. NEVER keep the firm’s operational funds together with client funds. Separate. That will help to maintain proper accounting for future audits

There are thousands of solutions out there (there are 500 EMIs in Europe alone, 1400 Money Service Operators in HK) , don’t waste your time talking to everyone. Talk to the experts who can provide you with a unique, proven working solution.