3 myths about owning a forex brokerage busted

Is owning a Forex brokerage beyond your reach? Perhaps not. Adinah Brown, content manager at Leverate, explains.

Are you a trader looking to trade up from your existing career? Are you a business person who recognises a strong potential business?  Well, it might be surprising to know that you too can be the proud and successful owner of your very own forex brokerage.

Now, before you start shaking your head, there are a few misconceptions that we should take the time to correct. After that you can make you own decision as to whether or not you would pass up this unique and exciting opportunity.

Myth number 1. There is only one way to become a broker

It might surprise you to know that there is more than one way to own a brokerage. Obviously the first option that comes to mind is the traditional ownership situation, where you purchase or start a business that is a brokerage. This can involve significant investment if you are purchasing an existing company, or significant risk if you are starting out.

But other avenues exist. You can become a broker dealer, who buys and sells securities or distributes other investment products, acting on behalf of a firm and undertaking transactions. This is usually only possible with specific certifications like FINRA, so it might not be available to everyone.

An even simpler route is a white label, affiliate or IB route, which allows you to have clients and offer trading services which are effectively outsourced to an existing brokerage. It may surprise you to know that almost every brokerage already offers this service. It is as simple as signing up online for a “partnership” account, and then negotiating the terms and commission of your rates. Most brokers have affiliate divisions that recruit potential affiliates. For the broker it represents revenue that does not require their internal marketing and sales systems to generate. For the affiliate, it means that you can offer the service without having to pay for the infrastructure – a classic win/win.

Myth number 2. You need a million dollars in capital (at least) to be a broker

The first thing that a potential broker thinks about is the cost to get into the industry. With so much money being traded and leverage increasing the risk, the first assumption would be that you need a huge amount of capital to start your own firm. But, to be an affiliate or IB requires almost no outlay. Since it generally is structured as a revenue sharing agreement, there is no outlay and only a sharing of profits. Therefore the only cost is the marketing and sales activities, which at its most basic are one person with a computer and a phone.

For a broker dealer the costs are a bit higher, somewhere between $50,000 to $100,000 in start-up capital, according to Investopedia’s Dan Moskowitz. But this is still well short of the expected million dollars. And significantly much lower than the cost of buying an existing brokerage, which is somewhere in the 10 million to 1 billion range.

Myth number 3. You need to know a lot about finance to run a brokerage

I’m not going to say that it won’t help, but like any business, the owner doesn’t need to be an expert themselves in order for the business to be run effectively and profitably. As long as the business fundamentals are sound and there is a good management team in place, it will produce like any other business.

For those of you who are thinking of becoming business owners of a brokerage, there are many success stories of brokers who started out small and grew into a significant player in the market. Stories abound in the industry of small garage startups that grew into huge players, much like other segments of the technology industry. Hopefully with these myths dispensed you too can consider a potential opportunity that might change your life.

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