The decision to begin your own brokerage could be the logical step in the FX progression or a lifelong dream. There are many different reasons why to start your own brokerage, but if your operation is not set up correctly, your brokerage could lose money and ultimately your investment. Read more
FIX (Financial Information Exchange) API (application programming interface) is an electronic communications protocol for financial information exchange. Read more
I often get questions from our clients regarding the API and the benefits it can bring to their business. An API (Application Programming Interface) is basically a set of rules that is needed to communicate with a specific system. Read more
IT’S A MATTER OF PERSPECTIVE
When brokers move from using MetaQuotes MT4 Dealing desk to a straight through processing (STP) model, the first question we often get is, “What’s the difference between Net based reporting used by the prime broker and the ticket based reporting used by MT4?” Read more
When starting a new Forex brokerage or an investment fund, a logical question arises – what is the best location to incorporate and license the future business. Read more
The primary goal of this article is to provide a schematic explanation of the Prime Brokerage margin based model – Prime of Prime – and to explain the major reasons for working with Prime of Prime. Read more
Benefits to choosing a White Label solution with mutually aligned incentives
In today’s FX white-label market, a successful offering includes more than just off the shelf branding and liquidity. Read more
Working as a retail broker is challenging: customer calls, negotiations with liquidity providers, the constant search for new types of marketing – it’s a continuous competition. Pursuing the lowest spread, creating the best way to compensate partners, contemplating the nearest data center and more can be overwhelming.
Many of my clients who have already worked in the industry as retail brokers decided to move to the new business of Investment Management. Some begin to build an FX Fund along with the main retail Forex business.
The advantages of running an investment fund as a business are obvious:
● Increasing monthly volumes and an opportunity to improve trading conditions.
● Additional source of income such as monthly or annual payments for successful trading.
● Widening the professional network in the industry.
The biggest disadvantage is the daily stress associated with managing large financial investments or the risk of losing your own funds when you invest with a poor strategy. If you are planning to run your own FX Fund, you should first decide exactly what you are looking for:
1) Perhaps you’re a trader who successfully trades and wants to work with investors on your own. So you’re looking for investors.
2) Maybe you trade independently and want to have a few traders like yourself to diversify your product offering. You’re looking for traders and investors.
3) Perhaps you’re an investor without a clear idea of Forex trading, but you plan to use traders’ services. You’re looking for traders.
Consider exactly how you plan to do business. Here are some work options that might work for you (as a company or individual):
-The investor deposits the funds directly with the broker and gives you the opportunity to trade on the basis of the contract of Power of Attorney;
– You, as a fund, collect money from investors and trade with a total volume using the MAM system or your own platform/interface;
– You, as a trader, work for a brokerage agency, attracting clients to the broker brand with your PAMM account (of using MT4);
-You collect money from the investors and manage their money from your personal account.
The next stage is to define how you’ll get income. Depending on circumstances, there are various scenarios. The most popular and, it should be mentioned, the most profitable, is when a referral of a trader or a company directly negotiates a contract with the broker and gives access to his account to the fund. Typically, the fund has an additional commission of the client’s volume plus a bonus of the investor’s profit.
According to personal experience, sadly, this scheme is often abused by funds with unprofitable strategies. Inexperienced investors often swallow this bait.
If work is done with a fund that charges only in case of profitable trading, the investor should be on guard. Not all strategies yield the same result every month, and it’s likely that some months will culminate in no profit. If a trader gets any payment based on his trading results, there must be an agreement for at least one year, where limits of a possible “drawdown” must be clearly indicated.
The Legal Point of the Issue: It’s the same problem as creating a Forex Broker. The decision about licensing depends on your current clients’ requests.
In conclusion, I would like to mention that I often watch successful and unsuccessful traders as part of my job and I often recommend good traders to investors and vice versa.
This article is devoted to the actual problem of searching for and choosing a liquidity provider. I also list the main parameters by which these providers should be assessed.
To my mind, it’s worth mentioning that searching for a prime broker or a liquidity provider should be the defining challenge in building a successful model of a new or existing business. It is no secret that most companies contact at least three providers before making a final decision.
In the beginning, you should be certain about WHAT market participant you or your company represent. Accordingly, prepare to answer these questions:
-What exactly does your company or you do? Identify yourself with one of the categories:
A) an individual trading for himself
B) an individual or company trading its own funds or the funds of investors
C) a brokerage company offering Forex
-How do you trade?
● How long have you been in business, and with whom/what you have already worked?
● How much profit do you make per month (standard lots)?
● What amount per click do you usually send in the market?
● What are the details of your trading style (regarding trading for your customers)? This question may seem untactful, but it is extremely important. You can save a lot of time, for example, saying that you are an investment fund that uses high-frequency strategies, thereby reducing the potential number of possible suppliers.
● If you are trading using algorithms, do you have a server in the main data centers?
● What platform do you use for trading (your own and trading via FIX API, MT4, XWTrader and so on)?
This is how I see a perfect letter (or preparatory information for a conversation):
“Hello, my name is Sergey. I’m the director of the investment fund Invest Sergey. We are registered under the Cyprus jurisdiction to perform investment activities. We have been in the Forex business since 2013, and we concurrently export/import olive oil. We trade only EURUSD and sometimes AUDNZD, 30-40 lots per click usually in the Asian session, hold from 10 minutes to a couple of days.”
Here are some more detailed questions and topics to discuss with any future partner:
– What trading interfaces are offered by the Prime Broker?
This is one of the options for which the number should alert you. If the broker offers more than 5 platforms, it is worth considering the size of the company. Brokers should have very large teams to provide support for all these interfaces.
– Configurable trade flow
Some systems are sensitive to spread, some to unfiltered quotes. How easily will the Prime Broker be able to simulate the trade flow, convenient to the client?
– Statistics on negative and positive slippage
This important, determining component will allow you, for example, to precisely calculate your future profit or loss. These statistics will also allow you to objectively assess compliance with the proposed conditions of the Liquidity Provider. Ninety percent of the trades executed without slippage can be only under the condition that the statistic is based on a nonvolatile timeframe of a few hours.
– Location of data centers and open disclosure of latency maps
If you live in a small village deep in Siberia and do not have a VPS server in a data center of the liquidity provider, you should not count on a 200 millisecond execution.
This is a totally standard list of questions which one should ask a very interested client. As a rule, during the conversation, the nuances are identified, and as a result, you create a long-term productive cooperation.
Good luck in your search!
Over the past year I’ve noticed a new marketing tactic from FX Brokers and Institutional Liquidity Providers (LPs) which is distorting the FX marketplace and the expectations of clients and brokers who receive liquidity from such firms. Read more