Combining Forex Brokerage Startup With Forex Managed Accounts

Entrepreneurs who have decided to setup a forex brokerage should seriously consider combining their newly setup forex brokerage with offering forex managed accounts as a guaranteed way to generate volume and thus make sure that they will survive in the very tough and competitive forex market.

Suppose as an entrepreneur you have raised the required capital, hired the professional managers, traders and have a well organized back-office in order to become a forex brokerage, licensed and regulated by an authority in your home country or an offshore jurisdiction and you also have marketing plan to attract clients who will start trading through your platform, but does this mean that your brokerage will generate sufficient volume to cover your costs?

Probably not, which is why every new forex brokerage startup should seriously consider combining retail trading on client orders with forex managed account trading.

Getting volume from retail clients who decide for themselves how to trade, and when to enter buy/sell orders is probably a sure way to making money and is the preferred way of trading for most forex brokerages.

There is no risk on the forex brokerage since the client takes the decision and if the client loses money, the forex brokerage is not responsible for the loss. In the meantime, as the client trades in and out of positions, the forex brokerage keeps making money from the spread charged to the client.

The next question that we should ask is if the retail accounts are funding their forex accounts with decent amounts and thus generating sufficient volume or if they are small accounts, hoping in and out on 1-5 lots, which over several thousand accounts will be substantial, but until the forex brokerage startup reaches that stage, it may take time while the expenses are running.

So what should the forex brokerage startup do until it builds up such substantial client base to generate sufficient volume to cover costs and move into profit? The best and quickest way is to also offer forex managed accounts.

By offering the forex managed account service, the forex brokerage startup will make sure that a professional fund manager will manage the accounts and start trading positions with the objective of generating satisfactory profit for the participating clients based on a forex trading system.

In the process, the daily in and outs will generate sufficient volume, hence adequate spread income for the forex brokerage to cover daily expenses until the retail business picks up, while additional income will be generated by charging an asset management fee and performance fee on the positive performance generated from the forex managed service for the forex investors.

Fund Management companies usually charge a 2% asset management fee and then apply a 20% performance fee on any positive performance, which may be substantial and can generate such fee income to convince the forex brokerage to concentrate more on forex managed accounts, rather than chase small retail clients who trade in small lots.