Insights

Choosing a Business Model for Your Forex Brokerage

September 9, 2016

The forex brokerage industry is an extremely competitive one and surviving as a broker depends on many factors. Like any other line of business, an ethical conduit, as well as solid management, will always lead to success.

What should a successful business model in the forex industry consist of?

The main aspect is related to the overall brokerage positioning and this means a clear strategy to run the brokerage business is needed. Such a strategy should start with the main offering and how to differentiate, if possible, from competitor’s offering in such a way so to offer a competitive advantage ahead of other brokers.

Importance of Offering CFD’s

Things like offering more instruments to be traded (besides the classical currency pairs, a forex broker can offer commodities like gold, silver, palladium, platinum, oil, etc., CFD’s – contracts for difference, indexes, and the list can go on) or having a different commissioning system or innovative spreads may be part of a successful strategy.

Once the strategy is in place, implementation is the next logical step. To implement any kind of strategy or plan a sound marketing plan is needed. This plan should take into account sales strategies, concrete marketing campaigns that should center around the future customer and then follow up steps to retain the customers while gaining new ones.

Importance of Company Management

Employees management is key here. If the employees understand that a happy customer is a key to success in the forex industry, then the forex broker has a chance of building a sound business model.

Such a model, as mentioned earlier, should be built on customer satisfaction but one can only reach that if the right infrastructure is in place: great liquidity, stable spreads, commissions that can vary based on the volume traded, employees that understand the overall business model, plus a visionary management.

Management has two options when it comes to running and expanding a business model in this industry: either follows the business standard and comes with something that makes the business standing out of the crowd (which is kind of difficult as due to the aggressive competition there is little to be done) or innovates and imagines the way a forex brokerage should respond to future client’s needs and build on that.

Out of the two options mentioned above, the first one is a conservative approach that will not necessarily differentiate the broker’s services from other comparable brokers. Therefore, it is a less risky business model.

The later, though, while offering uncertainties, will grant success faster. Organizing focus groups with forex traders, liquidity providers, and other relevant parties in the forex industry will certainly be a costly process but the information gathered will help pave the road for a brokerage that will know how to address the future in this business.

Importance of Technology In Forex Brokerage

On top of that, forex brokerage is an industry highly dependent on the IT and online developments and if recent years are offering any clues about what the future will bring, then we know that these industries are changing at such a fast pace that is mandatory to keep the pace.

The classical example here is the introduction of ECB and STP execution as brokerages made the leap from four digit accounts (basically bigger spreads) to five digit accounts (lower spreads, better execution and naturally happier clients).

Brokers that failed to make the transition from a four-digit to a five digit offering when it comes to currency pairs quotation, remained trapped in the past with little or no chance of survival.

On the contrary, the ones that kept an eye on new developments and had a business model centered on what future client needs are, strived and moved forward.

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