Start a FX/CFD broker in the Bahamas

Getting a FX/CFD license in the Bahamas has become increasingly popular over the last decade. The reason many executives and existing brokers have gone to start a FX/CFD broker in the Bahamas is because it is more affordable than other regions but still offers a regulatory framework under which providers can offer trading in FX/CFD products.

Having said that, there have been some big changes since 2020, meaning it is not as easy or affordable to get an FX/CFD license in the Bahamas as it once was. As a result, there has been a drop off in the number of people looking to start a FX/CFD broker in the Bahamas.

As we’ll see, we think those changes mean that starting a FX/CFD broker in the Bahamas is now more for an existing broker with the means to acquire an additional license or a start up broker that has a good amount of funding behind it.

Start up brokers with minimal capital backing simply won’t be able to get a FX/CFD license in the Bahamas today. So if you are one, we would recommend looking at our article on the cheapest country to start a FX/CFD broker for some alternative ideas. 

Why start a FX/CFD broker in the Bahamas?

1. Low tax

FX/CFD brokers based in the Bahamas pay a very low level of corporate tax. From the start of 2024, revenues derived from outside the Bahamas are subject to 1.25% tax, with a ceiling of $100,000. In other words, you won’t pay more than $100,000 in corporate tax, regardless of your revenues. Note that since the Bahamian dollar is pegged at 1:1 to the US dollar, we quote all figures here in USD – even if the actual amount is in Bahamian dollars.

2. Ability to offer higher leverage

FX/CFD brokers with a Bahamas license can offer leverage of up to 200:1. This is much higher than many developed markets, where leverage is capped at 30:1 or even lower.

3. Meaningful regulation and access to banking

The Bahamas has a long history as an offshore financial services jurisdiction. We believe there is now a big gap between offshore jurisdictions with meaningful regulations and those, like St Lucia or St Vincent and the Grenadines, which offer no regulation at all. 

One other significant upside to this is the fact that you can get better access to banking services by setting up in the Bahamas compared to other offshore jurisdictions. This is a major benefit and one that should not be overlooked.

Overview of FX/CFD license in Bahamas

Why we don’t recommend the Bahamas $125,000 license

Readers that have some existing knowledge of the Bahamas FX/CFD license may know that there are two types of license. One, as we note in the table above, has a minimum capital requirement of $300,000. This allows you to run the b-book broker model.

The other has a $125,000 minimum capital requirement. The majority of what we say in this piece still applies to the $125k license – the application and regulatory requirements are effectively the same, you just can’t run a b-book model.

However, we think the $125k license is, at this point, almost redundant and not an attractive option for brokers. Given that it lacks market making capabilities but still has the same high costs as the $300k license, it is hard to see what the benefit of holding that license is.

If you are looking for a more affordable b-book license, which still offers a regulatory framework, we believe the Seychelles, Mauritius, or Vanuatu are superior options.

Steps to start a FX/CFD broker in the Bahamas

Getting an FX/CFD license in the Bahamas means ultimately filling out a fairly standard application form from the local regulator, the Securities Commission of the Bahamas (SCB).

However, you have to do a lot of preparation before you can do that. The following is not an exhaustive list but it should give you some idea of what sort of things you’ll have to do in order to get your FX/CFD license application up to scratch.

1. Register a local company

One of the first things you will have to do if you do want to start a FX/CFD broker in the Bahamas is to register a local company. This is not difficult to do but it is not as fast as it is in other regions. You will need a local agent to set up the company for you and they may require:

• Notarised copies of your passport
• Notarised roof of residence
• References from your bank
• Police record

2. Prepare documents for application

The documents required to apply for an FX/CFD license in the Bahamas are extensive but also fairly standard in other jurisdictions. They include:

• Details on shareholders, directors, and related companies
• Operational set up, risk processes, and technology stack
• A business plan, notably saying where you plan to attract clients from and what types of clients you will seek to onboard
• Highlight whether you have had any prior disciplinary actions from regulators in other jurisdictions

3. Prepare local set up for application

As noted in the table above, a Bahamas FX/CFD license does require a local presence. This can be small and even outsourced, but it is a must for the application and you won’t get a license before setting this up as it’s part of the application process.

4. File application with SCB

Once everything is ready then you will submit your application to the SCB.

5. Set up banking

Assuming your application is approved, you can proceed to setting up banking services to take deposits and run your Bahamas FX/CFD brokerage business.

How long does it take to get a FX/CFD license in the Bahamas?

We estimate that getting an FX/CFD license from SCB will take you about 8 months. 

The actual processing time for the application is likely to be about 3 – 6 months.

However, in order to file that application, you also have to do a large amount of preparation. Gathering all of the documentation, having it notarised where necessary, and setting up a local office – among many other things – is a time consuming process.

We always tend to err on the side of caution and believe providers that low ball clients by saying they can get a license in a few months aren’t necessarily being honest. Hence we believe 8 months, even if it may end up being substantially faster, is a good time frame to work around.

How much does it cost to start a FX/CFD broker in the Bahamas?

We estimate that you will need at least $500,000 to start a FX/CFD broker in the Bahamas today and get the requisite license from the SCB. That figure can be broken down into several components. We note that this is an absolute bare minimum. If you only have $600,000 to start your company, for example, this is not a good choice to make!

1. A $300,000 regulatory capital requirement

The largest contributor to that $500,000 figure is the $300,000 capital requirement. This is not a ‘cost’ in the sense that you aren’t paying that money away. However, you have to put that money up front and maintain it, so you cannot use that cash to run your broker, assuming you get approval from the SCB.

2. Application and registration fees for the SCB

The SCB charges an application fee of $2,500 and a registration fee of $15,000. 

In simpler terms, that means you pay the regulator $2,500 to review your application. If that application is successful, you will have to pay another $15,000 to register with the regulator.

3. CFD Supervisory Officer application and registration fee

One of the requirements to get an FX/CFD license from the SCB is that you have a local compliance officer, based in the Bahamas, called a CFD supervisory officer.

The CFD supervisory officer must pay an application fee of $1,000 as part of your overall application to the SCB. Note that this is distinct from the other application fee.

If approved, they will also have to pay a further $2,500 to register with the regulator.

4. Local office, legal, and agent fees

The hardest part to predict in this process is the fees you will incur from using various agents and legal service providers, as well as the cost of a local office. Registration fees are clearly defined by the regulator. In contrast, lawyers and offices have hugely varying costs, nor are providers typically transparent about how much they charge.

What are the capital requirements for a Bahamas FX/CFD license?

Brokers operating in the Bahamas, who want to run a b-book model, must have a minimum capital of $300,000.

For brokers that want to run the a-book model, then you can use a license that has a minimum capital requirement of $125,000.

We note that the a-book license, effectively a license that lets a broker deal in securities solely as agent, is now a fairly unattractive option for brokers, given the high costs of maintaining a FX/CFD license in the Bahamas. The below section should give you an idea as to why that’s the case.

What are the yearly costs when you start a FX/CFD broker in the Bahamas?

The costs of running a broker in the Bahamas increased dramatically after new rules governing CFD trading were introduced in 2020. 

Two key changes involved fees that had to be paid to the regulator.

1. A quarterly fee of $45,000 (or $180,000 annually)
2. An annual fee of $30,000

In effect this meant that the cost of maintaining a Bahamas FX/CFD license went up to $210,000 in regulatory fees alone. That’s not including costs related to hiring local compliance people, a local office, and other compliance reporting.

Perhaps because they realised just how sizeable those fees were, six months after first announcing them, the SCB then issued another change to its policies for FX/CFD brokers.

These introduced a tiered fee system for brokers that meant quarterly fees paid to the regulator became dependent on the quarterly revenue generated by the broker’s Bahamas entity. These were as follows:

Brokers making in excess of $10m on a quarterly basis would be expected to pay the full $45,000 fee.

Regardless of this change, we believe this is one of the least attractive components of a FX/CFD broker license in the Bahamas. The regulator’s fees are multiples of those charged to some brokers in tier-1 jurisdictions – hardly an attractive proposition when you’re offshore.

Bahamas FX/CFD license physical presence requirements

The Bahamas does have a physical presence requirement. You must have a local office and a local compliance officer.

However, the actual costs of these can be minimised dramatically. Firstly, you can simply outsource the bulk of this to a local provider. Today several FX/CFD brokers in the Bahamas share the same compliance team.

Moreover, the office and employee requirements are not particularly stringent, with only one local employee really needed. We have also seen post office box-style office set ups, although it’s not necessarily a great idea to pursue this model.

Are FX/CFDs regulated in the Bahamas?

The regulations on CFDs in the Bahamas are very similar to those imposed by the European Securities and Markets Authority, the pan-European Union financial regulator.

The key difference is that leverage is not capped in the same way. The Bahamas regulator limited leverage on all assets, except cryptocurrencies, to 200:1. For cryptocurrencies the limit is 20:1. This is a clear benefit for any broker looking to offer higher leverage.

However, on almost all other levels, the regulations imposed by the SCB are very similar to those put in place by ESMA back in 2018. That includes:

1. Risk warnings

FX/CFD brokers based in the Bahamas have to put a risk warning with client loss stats on their homepage

2. No incentives to trade

This means brokers with a Bahamas FX/CFD license cannot offer deposit bonuses or other similar features that would encourage clients to deposit.

3. 50% margin close out

FX/CFD brokers with a Bahamas license must close out client trades when their margin levels hit 50% or below of the minimum margin requirement.

4. Negative balance protection

FX/CFD brokers in the Bahamas must offer their clients negative balance protection. In other words, the client cannot lose more than they put down for a trade.

Starting a FX/CFD broker in the Bahamas – the positives and negatives

The Bahamas has become a unique offshore jurisdiction in the FX/CFD space following the changes made by the regulator in 2020. We think these rules have resulted in some positives but also significant downsides that you should be aware of.

Positives of FX/CFD Bahamas license

1. Banking

One of the main positives of having a FX/CFD license in the Bahamas is access to banking. This a serious strength and one that should not be overlooked by providers.

2. A meaningful regulatory framework

We believe there is a meaningful distinction between totally unregulated offshore jurisdictions and other offshore jurisdictions which have solid financial regulation in place. The latter should provide more trust to clients, improve your branding and – hopefully – corporate governance.

3. Ability to offer higher leverage within strong regulatory framework

Perhaps the key attraction of the Bahamas today is the fact FX/CFD brokers can offer high leverage but still have to keep to many of the rules that their European counterparts do. As a result we believe that brokers can onboard clients looking for higher leverage but maintain the sort of corporate governance standards that aren’t on offer in other offshore jurisdictions.

4. Low tax

As with many other offshore financial centres, if you start a FX/CFD broker in the Bahamas you will pay close to zero in corporation tax. That compares to more than 20% in many other jurisdictions around the world.

Negatives of FX/CFD Bahamas license

1. It’s expensive

To start a FX/CFD broker in the Bahamas you realistically need in excess of $500,000. And that’s not taking into account salaries, marketing, or long-term operational costs. 

The annual fees charged by the local regulator are also extremely high. We would even argue that this was designed to push out almost all providers, bar those that have seriously high amounts of capital behind them.

Ultimately this is the biggest negative of the FX/CFD Bahamas license. 

2. Regulations are prohibitive without the upside of being in a tier-1 jurisdiction 

Just as regulations can be seen as a positive, many providers may look at the Bahamas and compare it to jurisdictions like the Seychelles or Mauritius. Compared to those two regions, the Bahamas FX/CFD regulations are highly prohibitive. But then you are still in an offshore jurisdiction, albeit with the significant caveat that you can still offer higher leverage. Ultimately getting a pricey offshore license without being able to offer things like high leverage and deposit bonuses may not appeal to some providers.

Should you start a FX/CFD broker in the Bahamas? 

We ultimately see the current FX/CFD license in the Bahamas as an option for existing providers who are making a decent amount of money and want to expand their global footprint. The Bahamas license enables them to do that, within a strong regulatory framework that still permits higher leverage. We would argue that is what some providers would have wanted in Europe, even if ESMA thought otherwise.

This may also be an option for start up brokers that have significant funding behind them and want to launch globally. The Bahamas is a respected regulator and you can continue to offer higher leverage to prospective clients. 

One other very important point to highlight here is that the Bahamas FX/CFD license could also prove to be a good safeguard against future developments in other jurisdictions. There are now increasing numbers of FX/CFD brokers in the Seychelles, Mauritius, Vanuatu, and unregulated jurisdictions. If anything were to happen in those regions, like bans on the industry, reputational damage by association, or restrictions on CFDs, then having a Bahamas license would be a good fall back plan. We believe this is why some more established providers have acquired the license in the past couple of years, despite already holding other offshore licenses.

We do not think the Bahamas is a good option for start up brokers. The main reason for that is simply cost. It is going to be too expensive for an early stage company to start a FX/CFD broker in the Bahamas and get licensed by SCB. 

Finally, even for providers with significant sums of money that are healthy businesses, the extremely high fees that FX/CFD providers must pay to the SCB are hard to understand. This is by far the biggest downside of getting licensed in the Bahamas.