Insights

Steps to Starting up an Independent Forex Brokerage

October 23, 2016

Like any new business, starting up a forex brokerage should come because of a complex business plan that should consider both the pros and cons and project the business activity for at least the next three years. Without a business plan, everything is going to be done randomly and chances of success are close to zero.

In the case of setting up a new brokerage house, the entrepreneur should know from the start that this is an extremely high competitive domain and therefore the resources needed may exceed the ones needed for setting up other business. If on other “physical” businesses, most of the investment needed goes in the incipient stage, a newly built forex brokerage house will spend most of its resources on marketing campaigns.

There are many things to consider in the overall process, and perhaps the best answers are being given by a SWOT (Strengths/Weaknesses/Opportunities/Threats) analysis. If the outcome of such an analysis indicates there’s a viable reason for the business, and that there’s the potential for it to succeed, then the following steps should be taken.

 

Make a Sound, Realistic Business Plan

Such a business plan, as mentioned earlier, should be focused on a time horizon of minimum three years and maximum five, and the idea behind it is that the break-even point should be reached shortly before/after the first three years. More than five years means something is not right in the plan and expenses/incomes ratio should be adjusted.

A realistic business plan should cover the most important aspects of the newly created business, such as:

  • Incorporating the business associated costs.
  • Initial capital (funding sources, if the money is borrowed or not, cost of capital over the length of the business plan, etc.)
  • Setting up the management team – human resources expenses.
  • Brand design and copyright protection associated costs.
  • The technological infrastructure needed (STP/ECN, a combination of the two, White Label or not, etc.).
  • Back-office associated costs (physical office, the number of people needed to run the business daily, etc.).
  • Website construction/design, promotion costs.
  • Other marketing costs (specific campaigns, concrete steps to be followed by the website is up and running).
  • Projected income stream for the next three to five years.

If the result of such a plan is a positive one and the project seems viable, the next step is to simply execute the plan. After all, what is a plan needed for?

 

Executing the Plan

A proper execution of a business plan should be a process that should start backward, from the so-called D-day (the day the business is estimated to start) until the present time. The idea behind this process is to time each step in the business plan.
For example, if setting up the company takes six months, then this should be the first thing to start off, and so on. In this way, all the steps in the business plan can be followed in a timely manner and false expectations will be ruled out.

If the D-day is exceeded or everything is done earlier, the future three to five years’ projection should be adjusted as well. As a rule of thumb, the lengthier process is to incorporate the business in the right jurisdiction, followed by the time needed to secure a loan (if needed).

During those two periods of time, other steps can be taken, like designing the website, etc., in such a way to be ready on time. As for the overall future projections, what matters the most is the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), as that number will be the real metric in any business.

All the above are just the most important things to consider when setting up an independent forex broker. The overall process may still have some other specific issues that will influence the overall business, but covering the steps mentioned here should be enough for a good start of such a business.

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