$240 trillion: this is the annual global turnover of assets and funds of all kinds - stocks, futures and options, cryptocurrency and fiat - on numerous Forex platforms. Proven brokerage companies have conquered narrow niches in this market, using different options - White Label solutions at the start, further on, with business expansion - native platforms with original code and individual selection of tools for business processes depending on the type of brokers' work and traders' participation.
In order to launch a full-fledged platform, it is necessary to select the target audience and country, clarify the terms of jurisdiction, obtain a license, form a liquidity pool and integrate payment protocols. Since Forex is a risky enterprise (up to 80-90% of new participants who do not know how to choose leverage and strategy suffer losses in the first year of work on the exchange), clear terms of risk management should be prescribed depending on the type of marketing. Adjusting the interaction of back solutions and UI/UX design, protocols, integration of social networks, messengers and YouTube, Discord and other communication systems ensures the quality and smooth operation of the platform.
Programming and hardware platforms for development and startup
It is important to choose the right programming languages to develop a native platform for a brokerage company - the popular and simple Python, C++, which is needed to process large data arrays, TypeScript, which works in conjunction with JavaScript and extends its capabilities, laconic Rust, used for highly loaded servers with a large amount of digital information and its visualization, Elixir with Erlang and others. If a
Forex brokerage firm uses blockchain with clear fixation of transactions and operations, you can't do without object-oriented Solidity used for Web 3.0. Scala is a complex of the best Java and C# solutions, and Haskell is used for simple variants when the development price does not exceed $40 thousand.
Considering the fact that novice traders work on mobile devices, it is necessary to connect hardware systems for a
stock trading app, a browser version for a standard PC or under the fail-safe macOS or proven Linux. The market landscape determines the type and functionality of the platform, the types of trading and economic instruments and the demographics of the CA (age and income, risk appetite and experience). Often the geographical component influences the number and types of fiat or cryptocurrency pairs used. Among the proven platforms we note MetaTrader 4 and 5 versions, Quadcode with clear and diverse tools, convenient cTrader. How much it will cost to open a brokerage company depends on the totality of the components.
Roadmap and break-even point interrelationship
Roadmap and a business plan are two components of the project. The first one is designed to familiarize clients with the steps of a
stock trading app development, while the second one is intended to attract investors and brokers. This necessarily includes volatility forecasts, license and labor costs, purchase or lease of servers and cloud solutions, spreads and commissions. Calculation of the break-even point (BEP) is carried out according to the formula:
Suppose that 30 thousand operations are performed per month, the cost of servicing each one is $2 on average ($60 thousand of current expenses), generating a profit of $5. Gross income is $150 thousand. $12000 is spent on fixed costs (labor, rent of premises, White Label and servers, commission expenses). In total we get:
We will decode step-by-step in the following examples.
Profit margin on marginal profit = (($5— $2) / $5) × 100 % = 60 %
BEP (gross profit to break-even) = $12000 / 60 % х 100 % =$20000
BEP (number of services) = $60000 / $5 =12000
It means that in order to reach the break-even point of a
Forex trading company, 12 thousand operations have to be carried out. Each of the subsequent ones will bring a direct profit of $3. The break-even point in this case will be equal to $20000. Profitability in this case is equal to the quotient of net profit and gross income, which for this example is 52%:
Clearly, this is an approximate calculation, because for a detailed one you have to compute the spread size, commission service, brokerage fee, difference on key currency pairs - what is hidden in the current cost indicator. But it is impossible to plan for long-term profitability and scaling without such a basis, selection of the type of financial model - A with the type of activity as an intermediary between serious interbank representatives and traders (with subcategories STP, ECN and DMA), B with DD trading mechanism as a counterparty and strict control over transactions or flexible Hybrid, where risks are diversified and clients' transactions differ depending on their experience and status.
Licensing and tools of Forex-broker functionality
The state or region jurisdiction determines the type of license without which a brokerage company cannot operate. It is most difficult to obtain a license in ASIC and FCA, so more often at the start, without involving WL solutions, one resorts to doing business in offshore jurisdictions. In the latter, the licensing process is faster and cheaper, as flexible approaches simplify registration and allow trading with different countries. Usually in them the requirements to the amount of capital needed to do business do not exceed $18-50 thousand, and the terms vary from 3 weeks to a quarter. Contribution can be either zero or 1.5-3%.
After launching the platform to increase ARPU and LTV, you need to first provide the broker and trader:
- watch list (list of instruments used),
- selector of digital assets by size, novelty, profitability;
- a protocol that provides accelerated trading (within a time frame of 21s - 1 minute);
- hedging services of different types;
- possibility to display charts on several monitors;
- simplified access to shorts and longs;
- offer and explanation of leverage with optimal calculation for each case;
- protection against negative balance and bankruptcy.
Order execution speed and volumes, interaction with payment systems and aggregators affect the attracted liquidity, so the back office must interact with the interface in a clear and lightning-fast manner, forming a unified whole in the operating environment. For this purpose, the back office provides modules for communication with clients and audiences for marketing and sales, generation of reports and affiliate partners, dealing and invoicing, evaluation of participants according to KYC and AML parameters.
Speed of payment solutions with payment and revenue generation in dozens of ways will bring together traders from 10-20 countries. Data protection and encryption protocols should be under special control for cross-border transactions, taking into account the risks of counterparties and the volatility of assets, the likelihood of cyberattacks. Fault tolerance is directly related to the updating of functionality, so this aspect is necessarily taken into account in the business plan of the brokerage company, including it in the group of fixed costs.
License as a step in the jurisdiction of other countries
Banking institutions and payment aggregators prefer to work with licensed brokerage companies. A license obtained in a developed country and from a proven, reputable licensing authority, after registration with the NFA and CFTC for the U.S., simplifies opening a corporate bank account, works in other jurisdictions where there are mutual recognition agreements. It requires a realistic business plan and start-up equity capital with application justification. After launching the business, at the stage of expanding the list of regions, the Forex broker chooses a country where the rules of economic mandates are clearly defined and a smooth trend (descending or rising) of the currency rate is maintained. This is a standard algorithm of actions according to a typical
business model.
In Mauritius the license is obtained in a quarter, if there is a capital of $18 thousand. The price of the service is up to $25 thousand. In Seychelles similar terms, but there must be a capital of $50 thousand and the price of licensing reaches $45 thousand. It is easiest in SVG and Comoros - in three weeks the owner opens a brokerage business without specifying the size of the authorized capital in SVG and having assets of $50 thousand in the second region. In Vanuatu, an extended license is issued on condition of having $50 thousand. Therefore, offshore is significantly more profitable than registration in the U.S., where a brokerage company must have at least $1 million of capital.
The factor of territorial location must be taken into account when asking how much it costs to open a brokerage company. Depending on the amount of capital and country, licenses are divided into category A ($20 million), B ($100 thousand), C ($30 thousand) and D ($25 thousand). A separate license may be required for traders who invest assets of other individuals.
Clearly on partnership and profit diversification
Partnerships used to be a reliable way to attract capital and clients through incentives in the form of CPAs, % of spread and profitability. The cross-border nature of operations levels these conditions, so compensation models that include referral fees, % of profit generation and conversion can come to the rescue, provided they keep brokers sustainable. To simplify their operations, the company can maintain visibility through contextual advertising orders with PPC fees, organic promotion with SEO, mailings and influencer engagement, social media and
messaging apps like Telegram, LinkedIn or Twitter.
It is difficult to explain the values and benefits of business ideas without positioning in the Forex market like a “red ocean”. Press releases and newsletters, streams, e-booklets, webinars and videos of varying lengths - information that will help retain customers already attracted. Special attention to affluent and wealthy Muslims who require an Islamic Shariah compliant trading account.
Forex brokers profit from commissions, swaps and spreads as counterparties and mentors by providing VPS services. Their income is part of the brokerage company's profit. Therefore, in the absence of experience, it makes sense to resort to the WL model, which is 3-5 times cheaper, has a launch time of up to 2-4 weeks and a debugged CRM with a thousand tools in the functionality. Rent with a price tag of $2-10 thousand is significantly different from native development for $40-60 thousand with an added
cost of CRM of $20 thousand.
Technological aspects and elements of CRM for Forex
The platform's technological infrastructure includes a matching system with a transaction engine and liquidity providers (PSPs) accumulating funds in various currencies, CRM and the
trading platform itself. Special software on the server or in the “cloud” performs opening and closing of orders depending on price dynamics and the most favorable points of entry into the transaction. The software is built into the trader's cabinet and the CRM itself, so that investment management was simple and clear, reducing the risk level to 10-25%. The robot advisor should be able to make a decision based on quotes and send an order to the server in a matter of seconds.
A form of hidden advertising is the offer of testing for participants: a well-designed platform will demonstrate the advantages and give the opportunity to eliminate deficiencies before the full launch. A trader should understand what the abbreviations for DAY or GTC, IOC and FOK, GAT or GTD orders mean. The algorithm of combining prices and spreads, expiration dates and restrictions results in the variants MOO and LOO at opening, MOC and LOC - at closing of the trading day.
Additionally, conditional orders are built into CRM to prevent losses, stop-loss and limit orders that compare the stop-loss and the desired price, and then open an order when the desired price drops. The sliding option involves going into both regular and limit orders, one type of which is the PEG. Paired OCO and combined OSO with one master and several linked orders are designed for optimal profit. Connection via API to liquidity sources using a clear protocol simplifies integration and allows other brokers' payment systems to be developed on its basis.
ITCH and OUCH protocols are used for order management. ITCH transfers quotes in real time and performs contract confirmation, while OUCH sends orders and receives confirmation of acceptance. Sometimes a couple of seconds makes a big difference, as the tick size varies greatly from exchange to exchange. The FIX API toolkit is also in demand, as it can be used to trade equities and derivatives according to clear algorithms with increasing scalability, while gaining direct access to international markets.
Graphical component of the interface and analysis with settings
Clearness and accuracy of charts, settings of parameters of trader's working tools are the heart of any brokerage platform. For a particular country it is better to use those currencies that are quoted and in demand there. It does not make sense to specify currency pairs of African countries for the Pacific region, for Canadians - rupees and Australian dollars. 100 pairs sounds great, but a novice trader will get confused in them and simply leave. Therefore, it is better to limit yourself to those that are in use among the population in the area, adding to them reserve currencies or those that have weight and importance in the G7 or BRICS countries.
Order accounting in the format of hedging and netting, easy setting of stop loss and take profit, their execution in TWAP or immediate mode, on demand or market rate, evaluation of trends by market depth for selling or forming pending positions - all these tools should be understandable and be “at hand”. Analytics and indicators working in one bundle adapt the trading process, forming average and step-by-step dynamics.
In standard charts, graphical objects in the format of “candles”, lines and bars are used, supplementing them with timeframes, which are adjusted to the chosen trading strategy (hour, day, week or month). OHLC charts and tick intervals clearly show the current situation. The built-in robot advisor offers recommended stop-loss and take-profit parameters, but the trader can set his own, based on assumptions and calculations, assumptions and experience.
It is better to specify the leverage size for beginner traders in automatic mode not higher than 1:10-25, increasing the threshold when making several successful trades. Otherwise, a trader will consider the loss of funds at leverage of 1:100-500 as a fraud, which will destroy the desire to engage in Forex trading. If a trader or broker knows MQL5, he can
create his own trading bot, indicator or script using a library of reference solutions of the same type.
Cooperation with PoP connects different types of markets to the functionality, which increases the amount of available liquidity to finance transactions, thereby increasing the competitiveness of spreads and reducing the financial risks of counterparties. Fast communication and availability of market tokens, offering OTC and connecting SEPA, SWIFT or Faster Payments, availability of stablecoins with USDT and XRP, ETH and BTC cryptocurrencies for exchange to the client account currency stimulates the growth of resilience to volatility risks. It is good to have different accounts in correlated currencies connected to a single multi-currency margin account for portfolio diversification.
An example of netting and application of a non-castodial protocol
Extensive reports on accounts and operations of the Forex broker determine the success of the future strategy: comparison of current data with the past quarter or year allows making adjustments to the plans. If netting (offsetting) conditions are included in contracts, it simplifies the work with liabilities: for example, a trader planned to sell gas futures worth $39.2 thousand in several orders to get profit from the purchase made in May, when the price tag was $380 per 1000 m³.