Forex white label ideal for start-ups

A quick way to enter the forex market or startup a new brokerage business is to enter into a forex white label agreement with an established brokerage, which not only will reduce the risk of failure but will also allow the entrepreneur to better understand the business before committing money and resources.

Forex white label is essentially the process whereby you as the new startup get to offer a ready and tested online trading platform under your brand, whereas in actual fact, everything is done by an already established and preferably regulated forex brokerage or investment firm.

Suppose you wish to offer the popular MT4 online trading platform to your clients. First thing first, you need to formalize how you wish to operate because all the regulated forex brokerage firms or investment firms offering forex trading will not agree to white label their platform to you unless you can prove that you, yourself are regulated.

Assuming you are regulated and have secured your license, the next question is the level of investment you need to make in an online trading system. Do you buy the MT4 and then try to find counterparts with whom to deal and provide you with live prices or is it better first to enter into a white label arrangement whereby the forex brokerage provides you with their already tested platform and take responsibility for solving all technical and pricing issues and you simply add your logo to the platform and offer it to your clients?

In my opinion, such an arrangement is by far the best strategy since the funds needed to pay to another investment firm to white label their platform is significantly lower that purchasing the platform and secondly, it is very difficult process to resolve all technical and pricing issues, with the whole process likely to take several months until all issues are resolved.

Once you are up and running, then you can take the decision to purchase the online trading platform and slowly get on with the process of making it work in all areas including pricing, back-office and front office.

In this respect, I would say the most important element is how much volume your firm is likely to generate, since many firms are likely to finance the cost of setting up the white label electronic trading platform and cover the monthly service charge payable to MetaQuotes if you can guarantee minimum monthly volume.

In such a case, your entry into the forex business can be very cost effective since not only there will not be a need to pay setup fees and monthly service charge, but you will also get sufficient income since in a white label arrangement, you also do get the option to add extra commission to the spread. If you have volume, then you can negotiate almost anything.

The fastest and guaranteed way to providing assurances that you can deliver volume is to place a deposit under a forex managed account arrangement whereby the forex brokerage offering you the white label will trade on your behalf. This way, your brokerage will deliver the minimum volume without charging you for setup fees and monthly service charges, you will get to benefit from the added spread and your portfolio will also grow.

Forex brokerage need volume to survive

The key to the success of every forex brokerage firm offering online forex trading is to generate sufficient volume generated through the activity of its clients. It does not matter whether the forex brokerage is an STP broker or market maker taking the risk. Without volume, the forex brokerage is doomed to fail.

This may explain why forex brokerages are the most aggressive advertisers through the Internet, in the traditional press (such as newspapers, magazines) or by cold-calling clients offering very tight spreads, swap free accounts ideal for Islamic traders who by faith are prohibited from receiving or being charged interest as well as those who offer free trading tips.

Once a forex brokerage manages to attract a client, then this becomes a revenue source for both the brokerage acting as pure STP broker or market maker. In the case of the STP broker, who does not take a counter position against the client, the objective is to make a tiny markup on top of the spread received from a counterparty and thus make the desired profit. In the case of the market maker, and specifically those who never cover positions, the objective is for the client to lose and eventually be wiped off, so that the specific brokerage makes all the money.

This may also explain why many market makers agree to accept clients with deposits of as little as $100 whereas a pure STP broker will only take clients with minimum balances of $5000 and above.

In fact many market makers also agree for commission free client deposits through credit cards or plastic money transfers and absorb the 2-3% card handling and processing fees, since for them, the objective remains to attract clients at all cost on the belief that eventually all retail clients lose their money.

For those who opt to become an STP broker, another effective way to attract clients and generate volume is to offer forex managed accounts whereby they manage the accounts on behalf of clients and take the responsibility to generate buy and sell orders. Although there is no guarantee with respect to performance, but it is generally accepted rule that any broker, especially the regulated ones are most likely to work properly and take all measures to generate genuine profits for their clients and at the end be rewarded with a certain percentage from the positive performance.

Forex Managed Accounts boost daily forex volume

There are millions of individuals who have opened forex trading accounts and are placing buy/sell orders and making trades in the market and thus contributing to the phenomenal increase in daily forex volume, but the bulk of activity is generated by Fund Managers who have been entrusted with the management of forex managed accounts.

According to the Bank of International Settlements, the daily volume of forex trading surpassed $4.1 trillion a day. The report, which is published only once every three years, is useful since it highlights the phenomenal growth of the forex market.

The forex market is the market through which all global trade activity is made so it’s no surprise that the daily volume is so high.

An important part of the market however is also related to trading or investing activity, the bulk of which is carried out by institutional fund managers as opposed to the retail speculators who hop in and out and trade small lots.

There is no doubt that the majority of investors who wish to trade in forex prefer managed forex accounts handled by professional forex fund managers who use a combination of fundamental and technical analysis tools to trade in the forex market.

There are many who question whether a small retail investor can survive in the forex market. In fact many forex firms who have the license to act as marker makers that is they take the risk and never cover client positions have based their business success on the failure of the retail investor.

The reasoning is that eventually, the retail investor will lose his money because retail investors are not sophisticated, they are not disciplined and they trade with their heart rather than their brain.

An increasing number of market makers thus increase the leverage offered in an effort to convince the retail investor to trade bigger amounts and thus increase the chance of losing the original capital invested.

On the other hand, a professional manager is more likely to use sophisticated technical analysis tools, have access to the latest news and comments hitting the newswires and which are likely to have a major impact on prices and equally importantly trade based on discipline and risk management tools.

 
This is why more and more investors are shifting to professional fund managers, especially those employed at regulated investment firms, giving them the mandate to manage their forex accounts.