It may be incredibly rewarding to become a broker. When we look at successful individuals out there. We often forget about the problems they may have faced when they started off.
Forex brokers have to face many problems when they set foot on this journey. In this article, we will look at the 5 most common problems faced by novice brokers.
Choosing The Right Forex Broker CRM
If you want to take your brokerage to new levels of success, you must invest in a concrete Customer Relationship Management (CRM) system.
Since many industries require a CRM, there are many software out there. However, we suggest using a CRM system built especially for the Forex industry.
The Customer Relationship Management system should maintain customer forms, grant them permission to trade as soon as possible, it should contain the number of traders, number of trades made, profit and losses. If you are working with Introducing Brokers (IBs) your CRM system must maintain records about them. The number of traders they have introduced to your brokerage, the number of trading accounts they manage etc.
CRMs need careful consideration. We suggest you take time to build your brokerage goals and identity and choose a CRM system that best matches your brokerage requirements.
Choosing the Right Jurisdiction
At the beginning of your Forex Career, you must finalise the place where you want to operate from. This is a tricky decision to make because all jurisdictions are not valued the same way.
Though it is not compulsory for brokers to have a license, all jurisdictions do not allow you to operate without one. Without a license you have fewer opportunities and fewer banks would want to cooperate with you.
Different jurisdictions have different sets of rules and it is not easy to set up a brokerage anywhere you want.
In case you want to get a license before starting your brokerage you need to find the best jurisdictions for a license. Ideally, the best place to start a brokerage is one where you will get maximum trading opportunities, it is easier to set up a brokerage and requires lower upfront costs. Banking options are also important.
Places that require lesser upfront costs often have fewer bankers and traders, while on the other hand, jurisdictions that have higher upfront costs (like getting a license, an office and a CRM) also have maximum trading and banking opportunities. So, it all depends on your budget and time.
Due to the strict Anti-Money Laundering (AML) policies, it has become harder for new brokers to find a banker. The most prosperous places for forex have very strict banking laws. Many banks don’t allow novice brokers to open an account.
This may pose a huge challenge because it is easier to get a license than it is to get a banker. Please don’t stop your research after you choose a jurisdiction, you must check how easy/difficult it is to open a bank account in the designated area as well.
The fourth thing we read about but do not anticipate is time. Yes, we know that it takes time to get a license but really how much time is too much time? And how much time do you have to spare?
A forex license can take anywhere between 2 months to 24 months depending on where you are applying. But time is not limited to your license and setting up a brokerage. It takes time to build a forex website, integrate forex technologies, find a banker, set up an office, hire a manager.
You may have enough resources for an expensive jurisdiction but how long can you handle the upfront costs before making any profit?
Sometimes, as a novice broker, you may have to wait on things you didn’t expect to wait for in the first place. For instance, we discussed how banking may become a problem if you are a first time broker. There may be holdups in web design, technology integration, and even client acquisition.
Effective marketing keeps the forex industry running. Since Forex deals closely with money and other liquidities, it’s harder to gain someone’s trust. Clients won’t simply choose you because you own a brokerage.
Many traders choose a broker because they’ve heard favourable responses from other traders. Word of mouth remains the strongest form of marketing in the forex industry.
Finding your first set of traders is harder because there is very little information out there about you. Traders need a good reason to trust you and with the increasing fraud cases in the brokerage industry, traders stay away from new brokers (especially those without a license).
Marketing strategies keep changing every few years so it’s very hard to cling on to a trend and hope for the best. This is why marketing is one of the biggest problems for a new broker. Many brokers have already exhausted a lot of money by the time their brokerage is ready for traders. They just don’t have enough to invest on marketing, and that’s when the office collapses before soaring.
It is very important to build networks even before you become live. If you are a trader transferred broker, start networking with other traders much before you start your own brokerage. If you can create a strong impression, they are much more likely to shift to your brokerage.
So, here are the most common problems faced by a novice forex broker. However, once you embark on this journey and stay on it despite the hurdles, they will be less frequent in the years to come. All the best!