90% of all Forex traders lose all their money in the first few months. The rest receive a steady income, but at the same time constantly pay for market access and transaction services, and most of this money goes to brokerage sites. In this article, lawyers from Regulated United Europe would like to tell how to create such an Internet platform and get their share of profits in the largest financial market of the planet.
Launching a platform for trading on Forex is a complex and expensive event that requires careful preparation.
This process includes the following:
- Marketing Research. It is important to study your competitors beforehand and understand who your target audience is: age, gender, hobbies, income level, country and so on. This will largely depend on the place of registration of the legal entity, the approach to promotion of the platform, the number of supported languages and other.
- Seed Capital Formation. When starting a brokerage business, it is necessary to plan the allocation of funds to cover running costs for several months. To do this, you need to determine the size of the operating and trading fund and fill them.
- Registration of a brokerage company. To accept money traders, you need to open a current account in the bank for a legal entity with a brokerage license.
- Agreement with payment service providers (PSP). It is desirable to establish a relationship with several PSPs to diversify the risks associated with financial settlements.
- Choose the type of trading platform. They come in three types: Market Maker, STP, ECN.
The points connected with market research and formation of start-up capital do not need additional description, as they are typical for any kind of business. Other things (in the case of the launch of the trading platform Forex) are unique and require close attention.
Company registration and licensing
Recognized world Forex-centers. There are a number of international companies where it is possible to register a firm and obtain a brokerage license in accordance with the financial regulations of the selected State.
With this license you can:
- Provide brokerage and other financial services;
- Optimizing profits through low or zero tax;
- Hold and control the assets of clients;
- Get better terms with banks;
- Work all over the world.
Recognized financial centers include the USA, UK, Malaysia and Belize. Hong Kong, Singapore and Japan follow. In these countries there are no problems with state regulation of forex activities and control of financial activities, so the trading platforms with such registration are trusted. However, the forex broker license in the above countries costs a lot of money, and its registration takes quite a long time (up to one year).
Offshore Countries. To speed up this process and reduce costs, you can register an offshore company and get a Forex license in a simplified manner. To do this, suitable:
- British Virgin Islands
- Saint Vincent and the Grenadines
- Cayman Islands
- Panama City
The opening of a Forex company in the offshore zone is best suited for start-ups and companies who want to test their business model on small wounds, after which you can get a Forex license class A.
Trading Platform Selection
Marketmakers and Trading Bots
A key feature. Marketmakers create dealing centers that provide «artificial» prices for certain currency pairs. When a user bets on such sites, he plays against a broker. In the event of a win, the trader receives a reward – the difference in the value of the asset if he loses – the broker takes the difference for himself.
Marketers perform three tasks:
- Make available demand and supply rates for certain currency pairs.
- Undertake to conduct transactions with all traders at the price indicated in the schedules of the dealing center.
- Taking financial risks for each position.
Marketers generate profit from the difference between the price of buying and selling an asset. Or simply put: losing a trader in a transaction is a broker’s profit. For this reason, such trading platforms are treated with caution, as there are fears (and confirmed precedents) of possible manipulation of the course from the platform to the detriment of traders.
STP stands for Straight Through Processing – such trading platforms send customer orders to liquidity providers (banks or liquidity pools) and thus avoid conflicts of interest. Ideally, the order is sent to several suppliers who place the application on the interbank with different conditions, after which the application is executed with the best available price. This type of trading platform Forex generates profit through commissions and spreads. Commissions are paid for the order or lot, and the amount of spreads usually depends on the liquidity of each market.
The ECN stands for Electronic Communications Network – the platform to direct orders of traders directly to the Forex market, usually without any intermediaries. Due to this, trading orders are executed with minimal delays, therefore, traders can respond to market dynamics with maximum efficiency.
Brokers do not guarantee execution of orders exactly at the price indicated by the trader in the trade order, as orders are placed on the interbank market, where there are no «guaranteed orders» (only dealing centers guarantee the like).
Approaches to site development
Platform purchase. The Forex trading platform can be purchased at a fixed price, which usually also requires a relatively small monthly fee.
- MetaTrader4 (MT4) is a trading terminal for trading fiat currencies that can be connected to the site for $100,000 plus another $20,000 for 12 months or $1,500 per month. And you can also use MetaTrader5 (MT5) with an extended list of assets for trading: shares, cryptocurrency, fiat, etc.
- ACT Forex. The price of this terminal is $25,000 plus $2,000 monthly for maintenance.
White label. You can also use already developed software to launch a trading platform by branding it under yourself. With this approach you can save a lot, but at the expense of loss of individuality in many things. The cheapest option will cost $ 5,000 plus $ 1,000-1,500 per month.
Forex platform rental. Here prices can range from 1000 to 20 thousand dollars per month. The approach allows you to save on the start, but in the long term it is much more expensive than the other options.
Forex broker and trading platform elements
Development of the Forex trading platform site can be divided into two directions of mandatory and additional elements. The following areas of development are usually mandatory.
Forex Client Area. A set of tools with which traders manage assets. It can range from back office management systems to mobile applications. Typically, the development of a client zone includes the following areas:
- trader’s room;
- back office tools;
- partnership systems;
- payment solutions.
Website Design. The interface of the platform should be simple and understandable, so that traders at an intuitive level understand what and where to do. In addition, design should allocate a platform among competitors. In this direction, you need to pay attention to:
- branding and development of design solutions;
- integration of trading terminal (for example, MT4) and CRM;
- develop user scripts for the interface;
- interactive tips.
Online Marketing. Promotion is as important as the technological side, excellent design and monetization, as it does not matter how steep your platform is if no one knows about it. It is therefore necessary to address:
- creation of target pages;
- SEO-optimization of content;
- partner programs and sites;
- banners and many others.
Forex CRM. Customer relationship management systems should support the full process of sales and storage of assets. It is best to integrate it with MT4 by giving the project team access to all the information about traders. That is, in the CRM panel you need to do:
- integration with MT4;
- management of leads and client requests;
- client accounting management.
A good trading platform is not limited to the purchase and sale of foreign currency assets. The best players on the market also integrate into their website support:
- Difference contracts and options;
- Trade through CFDs
- Margin trade.
In addition, it is important to take care of the quality content of the site, which will help to attract customers and increase the loyalty of the community as a whole. For example, you can launch a news feed or create training lectures, courses, webinars. This is liked by both users and search engines.
It is still worth considering the introduction of a demo account. With its help, traders will learn to use your platform without risking losing real money. In addition, the demo account can be used in the training course, but in this case, access to it should be free, that is, no need to replenish the deposit.
Safety and reputation
Safety and reputation, from a trader’s point of view, are determined by the information trail in the network and by the regulators who control the brokerage company.
These include the following:
- BaFin – German Federal Financial Supervisory Authority.
- FCA and PRA – Financial Conduct Authority and Prudential Regulation Authority, UK.
- NFA and CFTC National Futures Association and Commodity Futures Trading Commission.
- CySec – Cyprus Securities and Exchange Commission.
If the site is under the jurisdiction of one of these agencies, traders and financial partners will trust it more. Therefore, there will be more users and better conditions for cooperation. On the other hand, being in the jurisdiction of agencies with questionable records scares people away.
In addition, it is important to add the site to the main listings of Forex trading platforms. Such resources test the reputation of brokerage companies and look for feedback about them. If your site is not listed, traders may find it unpopular, untrustworthy or just a scam.
Monetization of the platform and earnings
Most platforms earn on spreads and commissions. Spread is the difference between purchase and sale price calculated in pips. Pips refer to the lowest price change of an asset – a price percentage point or simply a percentage point.
For example, if the exchange rate of the currency pair EUR/USD falls from 1.14009 to 1.4008, this will be a one-point change. If the price of a currency is shown with only three decimal places, then the third decimal place is the same price point.
Spreads can be fixed and variable. In the case of variable spreads, their size usually depends on market liquidity – the more liquidity, the lower the spread. Commissions are trade costs, which are determined in advance and depend on the volume of trading (the larger the volume, the smaller the commission).
In addition to spreads and commissions, some sites also set various additional fees. For example, the use of software for trading, real-time pricing of an asset, availability of indicators and other functions. Some companies go even further and charge for calls to support, use of a securities account or set monthly fixed fees.
Creating a website trading platform Forex remembers that it is a market with a very big competition. The optimal strategy for starting a business in these conditions is to start small and gradually expand. Thus, it is possible to start with a certain region (country), to become a monopoly on this territory and then to move to global markets. Do not overdo monetization, especially at the start. Ideally, in the first year of launch, your commissions should be minimal. However, you can win the market not only at low prices, but by standing out against the competition.
Before launching your own online Forex broker, lawyers from Regulated United Europe recommend carefully familiarizing yourself with the current legislation of the country in which your project will be launched, get forex license and only after that start accepting deposits from traders.
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, Prague, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.