In this article we’ll look at how to start a forex broker and what you’ll need to do it. People looking at how to start a forex broker tend to come from within the FX/CFD industry, but others come from outside as well, so this guide is aimed at both.
Before beginning, we should note that the term ‘forex’ tends to be used interchangeably with contract-for-difference (CFD) and, although many people talk about ‘starting a forex broker’, what they nearly always mean in practice is a company that offers CFDs to retail clients.
Because of that, we use the term ‘forex’ to describe the products on offer but you should realise that the main product you are ultimately offering your clients is likely to be a CFD.
With that in mind, let’s jump into it and look at how to start a forex broker.
A simple overview
- Are you sure you want to start a forex broker?
- Set up a forex broker company and get a licence
- Start a forex broker website
- Choosing a trading platform
- Setting up with a forex liquidity provider
- Keeping your broker running smoothly
Are you sure you want to start a forex broker?
It may seem strange to start an article looking at how to start a forex broker by asking this question but it really is worth examining.
Most people who want to start a forex broker have typically worked at a forex broker or at a company that provides services to forex brokers. Most often they have worked in marketing or sales. Even if this isn’t you, the following is still worth thinking about!
In short, if you have worked at a forex broker then the odds are that you have only had to deal with a small fraction of what it takes to run one.
For example, let’s say you were in the marketing team at a forex broker or you worked as an affiliate.
In this case, you may be very familiar with how to bring in clients to a forex broker but know little about the huge amount of backend work that goes into managing one. Dealing with compliance, managing sales people, talking to clients, doing business development, handling payments – all of these things are hugely time consuming and challenging.
That’s not to say that you can’t do them, just that it requires a huge amount of work to do so. If you do not enjoy doing these things or don’t have the capacity to pay others to do them, then you may not want to start a forex broker. This is not the end of the world and there are other types of forex broker businesses that you may want to consider running instead.
Another key factor that may put you off is money. Simply put, starting a forex broker business today requires a huge amount of investment if you want to do a good job. Again, there are different levels here and there are cheap ways that you can start a forex broker. But if you ultimately want to grow your business, there is a good chance you will need a lot of capital to do so.
The final point that is worth thinking about is regulation. We look at this in more detail in this guide but, simply put, the costs associated with getting your forex broker regulated today are extremely high, with some exceptions. It is also time consuming to make sure you are properly regulated and if this is not something you want to do, then you may wish to reconsider starting a forex broker.
Start a forex business (that isn’t a broker)
Cheapest place to start a forex broker
How to start an FCA forex broker cheaply
Step 1: Registering your forex broker and getting regulated
Ok, so let’s say you were tenacious enough to read through that first part and are still committed to starting a forex broker.
The first thing you need to do is think about where you want to set up your forex broker. In simple terms, this means where you want the company to be registered and, if necessary, where it will be regulated.
Today you have a few different options when it comes to registering your forex broker and each jurisdiction has its positives and negatives. Broadly speaking, the key factors to think about are:
- What are the capital requirements?
- Do you need people to be in the jurisdiction your company is registered in?
- What regulations do you have to follow?
- Banking and payment options
These are the key factors to think about when registering your forex broker company and so we will talk a bit about each of them in detail so that you understand what is likely to be required of you and what your options are.
Forex broker capital requirements
Capital requirements is a minimum sum of money that you must hold as a forex broker. This is typically to reduce your counterparty risk or, in simple terms, the risk that you won’t be able to pay any money you owe to the people you do business with.
These range massively from region to region. For example, forex brokers in the US must hold a minimum of $20m in cash, which is one of the reasons the country is so unpopular with forex brokers today.
At the other end of the spectrum, some jurisdictions, such as the Marshall Islands or St Lucia, have no framework for regulating forex brokerage businesses. As a result, there is no real capital requirement.
Other jurisdictions sit in the middle. For example, setting up a forex broker in Vanuatu or the Seychelles may mean you have to hold $50,000 in share capital.
Do you need a local office?
It’s common for people that start a forex broker to be based in a country that’s different to the one the broker is actually registered and/or regulated in.
If this is the case with you then you need to think about whether or not the jurisdiction you are starting your broker in requires you to have a physical presence in that jurisdiction.
For example, if you are regulated by the Financial Conduct Authority, the UK’s financial regulator, then you need to have a physical presence in the UK. This will be costly given the high wages and rent costs that you have in the country.
In contrast, St Vincent and the Grenadines or St Lucia do not require you to have any physical presence in the country. This is thus a much simpler, cheaper option for startup brokers.
Other jurisdictions require a physical office but these requirements are less stringent than those imposed by regulatory bodies in Europe.
For example, Vanuatu forex brokers must now have a physical office in the country with local staff. However, the costs of employing these people and the number of people required is much less cumbersome than it would be in a jurisdiction like the UK or Cyprus.
What regulations do you have to follow?
Different regions have much more stringent regulatory requirements compared to others.
For example, in Europe, Japan, and the US there are restrictions on how much leverage you can offer traders in CFDs, as well as how you can market those products to traders.
Other parts of the world may have much less strict requirements. If you are in a region where FX/CFDs are not regulated, then you do not have to meet any local regulations, although you still have to think about regulations in any of the jurisdictions you plan on attracting customers from.
Payments and banking options
The jurisdiction you are regulated in will severely alter your ability to access banking and payments services.
It should go without saying that any business ultimately aims to make money and you as a business owner must have somewhere to keep that money.
If you start a forex broker in a region where there is no regulation and limited corporate governance regulation, you will find it much harder to access banking services compared to other regions with more established, respected financial regulators.
Many start up brokers find the lower set up cost of unregulated jurisdictions more appealing. However, banking is an area you must think about and this may be more of an annoyance than you realise.
What is the best jurisdiction to start a forex broker?
This is one of the key questions that we see in the industry and it has that very annoying answer – ‘it depends’.
The main things you have to consider are:
- How much money you have to spend
- What markets are you targeting
We look at the cheapest jurisdiction to start a forex broker in another article, so this may be worth reading if you are still unsure about this.
Step 2: Starting your forex broker website
Brokers today conduct their business almost exclusively via the internet, which means you are going to have to set up a website in order to attract customers.
A lot of start up brokers see this as an afterthought or something simple to do. Beyond the fact that web developers can be extremely expensive, there are a few other key factors to think about here.
1. Do you want to attract clients on mobile or desktop?
The user experience of your site varies depending on whether you are using a computer or a mobile phone. It is not going to do you damage if you look good on both.
But one key point here is to just think about your end client and how they will access your website, and ultimately, trade with you.
If you are in a region where people predominantly access the internet and trade via mobile phone, make sure you have a website that looks good on their phones. This may sound like simple stuff but many brokers don’t do it. This means it’s an opportunity for you to take advantage of.
2. What do you want clients to do?
Think about what you want someone coming to your website to do. Do you want them to download an app, for example? If so, how can you point people to immediately get to the app store and download your brokerage’s application?
3. Consider varying your website by region
A lot of brokers use a monolingual website that they then use to target clients all over the world. Most likely this will be in English.
In contrast, successful brokers have websites that are tailored to different audiences. For instance, if you access the website from Germany, it will be in German and have products that Germans are more likely to trade.
Ultimately you are the one who knows which jurisdictions you are going to do business in. So make sure your website is tailored to maximise the number of clients you can get in a given region.
4. Make it look good
This one may sound simple but you would be surprised at how many brokers don’t bother to do it.
If you were thinking of buying something online, the odds are you would be much more likely to do so if the website you were on looked good and was easy to access.
The same is true for anyone logging on to a forex broker website. And given that so many people that start a forex broker don’t bother to, why not give yourself a competitive edge and do it?
Step 3: Choose a forex broker white label trading platform
If you want people to trade with you when you start a forex broker then you need a trading platform.
Building a trading platform is extremely time and capital intensive. Or in simple terms – it costs a lot of money, time and energy to do it yourself.
Unless you have investors backing you, then the odds are you are not going to build your own trading platform to start a forex broker. That means you have to look for a third-party provider that will give you one.
This is known in the industry as a white label. A forex broker white label is basically a trading platform that you as a broker can customise, put your branding own, and make it look like its your own product.
There are two factors that we think are important to think about when choosing a forex broker white label – features and fees.
Forex broker white label features
A forex broker white label is often packaged with a large set of services and so it is important to think about what you need before pursuing one of these options.
The most common thing for a start up broker to do is to take a full set of services.
In this instance, the forex broker white label provider will do far more than provide you with a trading platform and basically give you everything you need to start your forex broker.
That could include as much as:
- Registering your company
- Helping you set up a website
- Setting you up with a trading platform
- Giving you access to banking and payments
- Helping you with operations once your broker is live
The upside of taking a ‘full package’ like this is that it simplifies the process of starting a forex broker.
The downside is that you will be charged for each service. As a result, you should think about what you actually need from the white label provider.
For instance, you may find it easy to set up a website and register your company. This could also give you a greater level of brand differentiation compared to other providers.
In short, the best forex white label for you will depend on your needs. If you just want to get started as soon as possible, with minimal hassle, then look for a provider than can do that for you.
Alternatively, you may only need a trading platform with payment options. If that’s the case, look at different providers and see how much they cost, then take the best option for you.
How much does a forex broker white label cost?
The cheapest option that we have seen for a forex broker white label is $2,000 per month with no setup fee. This does not include the costs of registering your company or taking on the option of connecting to a bank account.
That’s the simple answer. The more complicated answer is, and we’re sorry to keep saying these two words, “it depends”.
There are generally four key fees you need to think about when looking at how much a forex broker white label costs.
1. Set up fees
Set up fees are a one off payment you make to a forex broker white label provider to get started.
At least one forex broker white label provider does not charge a set up fee. Others we have seen charge from $5,000 to $10,000. Others may charge even more than this.
2. Volume based forex broker white label fees
A volume-based fee is a fee that your white label provider charges you on order flow. It is usually on order flow that you internalise (‘b-book’).
This fee will usually be tied to a set amount of trading volume. For example, $5 per $1m in trading volume that your broker b-books.
3. Active account fees
Other white label providers will charge you for how many active trader accounts you have. From what we see, this is done on a threshold basis, rather than a per account basis.
What we mean by this is that you will not be charged for every new active trader you have. Instead it will be based on a threshold, so your fees may go up for every 1,000 new active traders you have.
4. Connections to liquidity providers
Most forex broker white label providers will connect you to liquidity providers, who you either pass trades to or use the pricing data they give you to make a book for your own brokerage. We’ll look at this in more detail shortly.
Can you get a MetaTrader 4 white label?
You cannot get a MetaTrader 4 (MT4) white label in 2024.
MetaQuotes, the company that created MT4, has stopped issuing permitting MT4 white labels. It is also not possible to get your own MT4 server as MetaQuotes has also stopped providing this service and will only provide access to its newer trading platform, MT5.
MetaQuotes has provided no information as to why it stopped issuing white labels and we have no information as to whether or not they will become available again in the future.
If you want to start a forex broker with a MetaTrader white label then you will have to look for another trading platform.
Step 4: connecting to a forex broker liquidity provider
The forex industry has its roots in UK spread betting. When spread betting started in the 1960s, the model was quite simple. A broker would take a futures price and add a mark up. They would quote that price to their clients. If their clients put too many bets down and they hit their risk limit, the spread betting provider would hedge their exposure in the underlying futures market.
Things have become slightly more complicated since then but the fundamentals have not changed. Some providers will still hedge in the futures markets or with an investment bank dealing desk. Others will use another CFD provider to hedge out their risk.
Ultimately, a company that brokers use to hedge their exposure is called a liquidity provider.
A liquidity provider really has two key functions for a forex broker.
- The broker uses the price feed that they receive from the liquidity provider to make a book for themselves
- The broker uses the liquidity provider to hedge their risk exposure
There are so many liquidity providers today and they tend to offer a range of features, so that it can be difficult to know who to choose. We think there are a few things to think about here.
1. Getting a bridge provider
A forex bridge provider connects your trading platform to liquidity providers.
The reason they exist is because trading platforms, in the past, typically had no connection to an actual liquidity provider. As a result, forex brokers could not easily pass through trades to an external liquidity provider.
Forex broker white label providers will nearly always provide you with a bridging option to connect to liquidity providers.
2. Pricing
The forex broker industry is extremely competitive. One of the key ways you are going to compete with your peers is on price.
The tighter the spread your liquidity provider is offering, the better the price you can offer to your clients. Better prices does not equal more clients, but it certainly doesn’t hurt.
3. Slippage
A lot of forex liquidity providers will offer you amazing pricing but then won’t hit those prices when you actually pass trades through to them.
This is usually known as slippage and it’s where the broker executes your trades at a worse price than the one they quoted you. If a provider is giving you great quotes but never hitting them, you may want to try elsewhere.
4. Customer service
When you start a forex broker, or perhaps even just working at one, you will see that things often go wrong. Prices may not be coming through properly or trades might not be executing.
Whatever it is, if you cannot speak to your liquidity provider then this is going to make things very stressful for you. Making sure you have good customer service from your liquidity provider is one way to avoid these problems.
One simple metric to use is simply being able to talk with them. You may think that this is an obvious one but believe us, it’s not as common as you might think.
5. Margin
If you have to put down huge amounts of margin with your liquidity provider then it means you have money down that cannot be put to use elsewhere.
Liquidity providers can offer a couple of features to help you here. One is simply to give you more leverage. Obviously this carries risks with it too which you must be aware of.
The other option is cross margining. This is where the margin you have down is used across products. So if you have excess margins in one currency pair, for example, it can be used to offset a position where you have insufficient margin. This mitigates the need for you put down more margin or have your position closed.
6. Range of assets
A lot of forex brokers will end up offering CFDs on a range of different assets. That could include stocks, indices, commodities or FX.
Forex brokers will often use different liquidity providers to access different asset classes. But when you start a forex broker, it can be simpler just to get a large set of products from one provider.
A simple way of thinking about your liquidity provider is like a trader signing up to a brokerage. Pricing and fees are going to be important to traders, but so are other things like customer service, the range of assets, and trade execution. The same applies to someone starting a forex broker and looking for a liquidity provider.
Step 5: Keep things running smoothly
If you’ve done everything in this list so far then you may think you’re at the end of your journey and the hard part is over. Alas, this is where things start to get hard.
In fact, you can probably start a forex broker today in less than a week if you use a white label provider. Keeping your broker running for over a year is a more challenging proposition.
The key things we see start up brokers either being unaware of before they start or struggling with as they go forward are as follows:
1. Make sure you have a good CRM tool
CRM stands for customer relationship management. You need to keep your customers happy and to ensure you can solve their problems.
The best option here is most likely to be to use the CRM system that your white label provider gives you. Other options are likely to be cumbersome and expensive to install.
Anyway, why do we think a good CRM system is important?
Many people that start a forex broker seem to think they can automate everything and that clients will simply join their platform, trade happily and leave them alone.
This is not the case. Traders will come to you with problems and you will need to solve them to keep your business going.
As we’ve said several times before in this guide, lots of brokers do not do this well. If you do then it gives you a competitive edge.
2. Payments and sign ups
Payments are very possibly going to be the most annoying thing you deal with as a broker. It may be that your provider cuts you off or that customer payments won’t go through. Alternatively you may not have the options that clients in the jurisdiction you’re targeting want.
Whatever the case, making sure your payments are smooth and always available is one of the keys to your success. Make it happen.
The other factor here is sign ups. Make sure you have the smoothest possible sign up experience for your clients. Signing up for a firm that provides financial services is often lengthy and annoying to do due to regulatory requirements. You will be amazed (and frustrated!) at how many people start your sign up process but fail to complete it.
Like payments, optimising this process and making it as smooth as possible will only bring positive outcomes for your business.
3. Do not blow up
One of the least reported on phenomena among people that start a broker is how many blow up from bad risk management.
Many people assume that firms shut down because they are scams. This is true and it does happen, as it does in every industry.
But what is extremely common is for poorly capitalised businesses to run huge internalised flows with no risk management in place. These people are banking on their clients blowing up but then they do first. Don’t be one of them!
Time is on your side
The main reason so many people want to start a forex broker is because it is an extremely lucrative business to run, if you do things right.
What many people that start a forex broker seem to forget is how long it took a lot of firms to reach the heights they’re at today.
IG Group is probably the largest broker in the industry today. It was founded in 1974 and by 1980 it still only had a few employees. Even by the early 2000s, over 25 years after the firm was founded, it didn’t have many more than 100 employees. Today it does over $1bn in revenue and has over 2,000 employees.
Many start up brokers seem to want to rush into things and grow as fast as possible. Besides the fact that this is really tough to do without large sums of cash, rushing things is a sure fire way to make mistakes and do things wrong.
When you don’t rush, realise you are in a business where time is on your side, and act thoughtfully, then you are much more likely to succeed. Good luck.