Are you suitable to build a foreign exchange brokerage business?

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With the ease of attaining information and lowered costs due to competition in technology development, many platforms, large and small, have sprung up from the first few well-known brokerage brands. As there are coexisting opportunities and challenges, many entrepreneurs with different industry background has all entered the industry.

So who typically are the more successful platform operators?

1) IBs who are introducing brokers and has many followers: These people act as “catalysts” to many new investors to this market and they are an indispensable as they connect professional entities and direct customers to the business. They mainly seek commissions or other returns. The IB is the “intermediary” in the foreign exchange industry, and it is an indispensable bridge between corporate customers and retail traders. After an IB bring in considerable customers and trading volume, and after they develop their deep understanding of the industry, it is likely they will consider transforming themselves into a broker/dealer. Ownership of their own independent brand and devise their own strategy to market to customers.

2) Money Managers/Asset Managers: refers to a kind of trust business of “entrusted by others, managing money/assets on behalf of others”. The money manager or asset manager, invests and manages customer’s assets according to specific conditions agreed by the customer. A saying in the field of investments: don’t put eggs in one basket. Based on the principle of risk diversification, the money manager has to diversify their funds into different financial market instruments, in order to reach diversification of their investment portfolios. Because of the forex market’s deep liquidity, popularity and flexibility in managing position sizes, managers have begun entering the foreign exchange market. As investing with brokers is taking certain amount of counterparty risk from the broker/dealer and privacy risk, these become some inherent risk to their business. As a result, many money managers have moved forward to build their own trading platforms and their own brokerage entity to operate their customers’ assets.

3) Companies engaging in financial derivatives like Securities, Futures and Options: Exchange traded derivatives operators has always wanted to be a part of the OTC(Over The Counter) trading business. Reason, the profit margin for OTC products are more versatile and flexible comparable to exchange trades instruments. With their experience, they could enhance their earnings through dealing and hedging currency exposure from their existing forex exposure from exchange traded assets.4.Companies from other industries: from our experiences, we have seen many companies without direct industry experience coming in to setup their own trading platforms. Firstly, it’s to hedge their currency exposures from payrolls they have to pay globally to their staff, secondly, its about privacy. Most would come with the possibility of adding a new business on top of their current business while making use of the platform they developed to hedge their net foreign currency exposures and consider broadening their investment areas.

4)Companies from other industries: from our experiences, we have seen many companies without direct industry experience coming in to setup their own trading platforms. Firstly, it’s to hedge their currency exposures from payrolls they have to pay globally to their staff, secondly, its about privacy. Most would come with the possibility of adding a new business on top of their current business while making use of the platform they developed to hedge their net foreign currency exposures and consider broadening their investment areas.

If you are considering setting up a broker/dealer business and would like to setup your trading platform, contact us

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