Stepping into the forex market as a startup broker can be a challenging yet lucrative endeavour for those who can find their footing in the competitive space. The high trading volume and round-the-clock nature of the currency market play a key role in the enormous liquidity of the forex instruments. Because of this, forex trading has become an attractive option for people around the world as they can easily access the market after signing up with a broker of their choice. Since your potential client base is huge as a forex broker, your potential profits are equally big. However, many new-age brokers have difficulty generating profits due to common mistakes that limit their growth.
Today, I will be telling you about the 5 common mistakes that you need to avoid as a startup forex broker, along with some relevant information about the forex white label solution and how it helps new brokers accelerate the launch.
1. Starting Without Enough Knowledge
The first common mistake many new forex brokers make while entering the brokerage industry is starting without enough knowledge. Knowledge is essential before venturing into any business, as you need to be clear about the market dynamics and the amount of competition beforehand. You should also have enough knowledge about forex trading as you will have to think from the client’s perspective to meet their standards in terms of brokerage services and trading platforms being offered.
For example, if you wish to cater to the needs of modern traders, you will have to offer advanced platforms like MT5, as it is perfect for algo trading and provides additional tools and features for ensuring a superior trading experience for all types of traders. Integrating the latest technology into your brokerage platform is essential for attracting clients who look for powerful capabilities and convenience. Hence, you should have some knowledge of this aspect before making your business decisions.
You should also have an understanding of the liquidity arrangements, and order execution mode, as providing sufficient liquidity along with competitive trading conditions and fast order execution are the primary functions of a forex broker. This makes the initial setup process complex for a startup broker.
Hence, I would recommend finding a reliable white-label provider as they will allow you to offer the same technology they use after rebranding and customisations. They can help you launch your platform within a few weeks, while building a platform from scratch may take several months or years.
2. Proceeding Without Sufficient Funds
Starting as an independent forex broker requires a good amount of initial capital investment, and the ongoing expenses can also be huge as the brokerage platform or website requires regular maintenance and updates. You should be able to estimate all the costs associated with platform launch along with the operational costs. You need to set your pricing in a way that these costs can be recovered over time, but it needs to be on the lower side, too, as traders will always prefer a cost-effective broker to keep their trading costs to a minimum.
It would be hard to generate any significant revenue in the initial phase of your business as it takes some time to build a loyal client base as a brand-new broker. Thus, you need to keep the required funds ready. Those who have a low budget, to begin with, can reduce their financial burden by choosing a low-cost white-label solution. You should also check the scalability of the white-label solution and arrange enough funds for upgrading your platform with a plan for the future. In short, starting without enough funds is a grave mistake, and you need to avoid it as a startup broker.
3. Absence of a Business Plan
The 3rd common mistake that many new-age forex brokers make is not having a definite business plan. Sometimes, they have a vague plan without specific details, leading to confusion later on. Some new brokers are in a hurry to enter the brokerage industry and don’t spend enough time to come up with a feasible business plan. In both cases, the broker will fail to achieve their business goals and targets as you won’t be able to deal with the complexities of a brokerage business in the absence of a proper plan to follow.
The business plan needs to be devised after deciding the target audience, jurisdiction in which you want to run your brokerage, estimating the costs and profit potential, the scope of your business, client acquisition and marketing strategies, how you plan to face the competition and what will be your USP (Unique Selling Proposition) that distinguishes your brokerage from all other competitors. A well-defined business plan allows you to implement your business idea in the best possible manner, which is essential for attaining success as a brand-new broker.
4. Offering Excess Leverage
Forex currency pairs have emerged as a popular trading instrument due to several reasons. One key reason behind this popularity is the availability of leverage, allowing traders to open larger positions with a smaller margin requirement. Being a forex broker, you need to offer sufficient leverage to your clients, as many retail traders choose their broker based on the amount of leverage they can avail on the platform. However, offering excess leverage would be a costly mistake when you are a new broker as it increases the risk for traders, who may leave your platform after incurring huge losses in leveraged trades.
Some traders are even reluctant to choose a broker offering a high amount of leverage as they tend to be sceptical about such offers. Hence, you need to keep your leverage offerings limited and prioritise the safety of your clients in every situation. This is essential for winning their trust, and this helps you to attain and retain more clients in future, as they will be confident to trust you with their hard-earned money. Being fair, transparent and ethical also adds to your goodwill and brand reputation as a new broker; that way, you can widen your client base.
5. Not Doing Enough Market Research
Market research is an essential step that must be completed before any business’s launch, and opening a forex brokerage requires extensive market research. You need to spend enough time observing the currency market to prepare for the ups and downs you must deal with as a forex broker. The forex market is dynamic, and operating in a fast-paced and constantly fluctuating market environment is difficult. The market shifts and changes can also be unpredictable at times, and a knowledge of fundamentals is necessary to navigate the intricacies.
A beginner in the brokerage industry may not have enough expertise or experience to deal with all the challenges they come across, and they may fail to make sound business decisions by themselves. In this case, relying on a reputed and top-tier white label provider will be a wise move as they are experienced brokers running their business, and they are able to offer white labelling services due to their success in the industry. You still need to do some research before signing up with a white-label provider, but with this alternative, you get to make up for the lack of experience.
Why is White-labelling a Perfect Solution for New Brokers, and How to Pick the Best One?
I already mentioned the benefits of choosing a white-label solution in the previous points, but you may still be in doubt about whether it is a perfect solution for all your problems as a startup forex broker. Forex white labelling is simply a business partnership which helps you to reduce the time, effort and expenses of starting a new brokerage. The pricing of white-label packages starts from a few thousand dollars, which is way lower than the capital requirement of launching a brokerage on your own.
Read Also: Common Misconceptions About Forex Trading
You also get to leverage an existing and superior technology without investing a lot of time developing it from ground zero. You also get the guidance and support of an experienced broker, which saves you from the dilemma of making all decisions on your own. The white-label provider will be responsible for many complex and technical processes, including liquidity arrangements and legal formalities. Joining hands with a regulated provider would be ideal to stay on the safe side, as you may also get the benefits of regulatory oversight.
Final Words
To sum it up, making mistakes is normal when you are new to something, but the 5 mistakes I listed above must be avoided at all costs as they stop you from marking a successful beginning to your brokerage business. Having the right white-label provider saves you from making such mistakes.
