Good idea to form your own brokerage firm?

Hi there my team and I have been trading forex for a while now and have a registered trading company with a few wealthy investors , now we all were wondering why not open up our own brokerage company ? We have been having too many problems with almost all the brokers we have been with. So does anybody know of the process and qualifications one has to go through to be a forex broker? We plan only trading for ourselves not the public and run all the trades off our own servers we have running through the internet medium and use metatrader most probably as our terminal.

Does anybody have any advice on this topic and the steps one has to follow to accomplish this?

Regards
Armand Strauss
Xlr8ed Trading

Best to contact your local financial regulator I would say, as it's different country to country.

Why would anybody want to start a brokerage, if the only purpose is to get away from the use of brokers?

Let me explain:

1.You must be a broker, if you want to take deposits from third parties and offer financial products to them. In some countries this already requires a banking license! The license itself is expensive amd this type of firm has to have a certain structure, which requires large overhead.

2.If your only desire and aim is to trade without a broker, you do not need to become one yourself!
You must be a well capitalized proprietary trading firm and you want direct access to "product".

If you like to trade forex directly without the use of a broker, you must be able to enter a "marketplace" like Currenex or LavaFX(FxAll), Reuters DB and/or some others.
These are the "places" where banks and financial institutions quote prices.

To participate indeed requires only a few things(lol):

-an account with a bank, which clears the transactions for you and is also part of the above mentioned networks. Very often these type of banks are refered to as "Prime Brokers". The offered service is usually listed under "Prime Brokerage". Example: http://www.rabobank.com/content/prod...sionalproducts
In reality they are transaction clearing banks.

-many of these banks will only accept corporate accounts and you must qualify in an extensive DD process, until your account is open(that is the main hurdle for many)
DD of the banks will include your reason , why you want to join a network as such. Simply stating, that you do not like your current or all brokers is certainly not the appropriate answer.
Most important is the frequency and the face value of your transactions in a certain time period. In essence, that means, that you qualify, if your transactions are not fitting the typical retail bill.
100 Mio in FX is nothing of significant size in a month.

-Unfortunatly banks like Deutsche Bank, Citibank, Rabobank and many others will not even consider an account opening with you, if you can not deposit a minimum of USD 500 000. That must be own money!

-After your account is funded, you simply sign an agreement with Currenex and or FxAll and so on and receive direct bank quotes and can settle transactions in the respective network.
Consider a commission RT 24USD per Million traded a fair price or 2.4 USD per standard lot.

Should you not meet these criteria, you must trade through a broker to have your transactions executed, as simple is that.

Becoming yourself a broker requires all this anyway, plus all further hurdles with the government licensing process.

Keep in mind, that there are brokerage firms, which offer a trader almost the same access at a much lower deposit level.(Interactivebrokers might serve as a well known example)

All clear now?

PT

What you are really trying to do is set up an investment firm and cutting out the retail brokerages. If your total funds are large enough this is easily done, you need a prime brokerage firm. The good and obvious ones, now Bear is gone, are Barclays, Goldman, Citi, DB and Morgan. They are the obvious London ones. If your AUM is not large enough for them you can approach what is called an Introducing Broker.

Whether you use the PB or IB route, they will be able to help you as your custodian and if you can show a good return that is consistent with little or no DD and a good Sharpe, they can even help you find other investors.

You, yourself do not need to be regulated, which can be a pain in itself. If you are serious about taking your investment firm further you need to shop for a good administrator too and you seriously need to think about your PPM, some PB's may even require you to have one.

Is it all doable? Yes, however it takes a lot of hard work on your part and is only really worth it if you intend to take this further. Just cutting out your retailbroker because you don't like them and have no intention of growing your investment firm is not really worth all the effort it will take in changing your setup. Also PB's and IB's will not offer you the leverage that retailers will.

None of the PB's use MT4 though, you can still use them for your charts but need to start looking at Hotspot and others for your order platform.

EDIT: If the only thing you want is just to cut out the retailers, setup an account with BARX or LCG and just keep doing what your are doing now.

It all really depends on where do you want to take your business and what you are trying to achieve. If you are not going to accept the public's money then why would you even contemplate becoming a broker.

You have a hellova point there.... Thanks for the effort that has helped me a lot...!

Hi,

Opening your own broker won't resolve issue if you don't have many liquidity providers & the technology to get that working. There is more and more liquidity agregators but the hasle to setup a broker is not worth it. Too much admin & setup & you have to take care for your own infrastructure. Servers down you can only blame your self.

Better try bigger ECN. Market makers are a pain in the a...

Good luck
13

Just another idea why you don't move to futures? With big volumes futures are better & no price feed manipulation.

Regards
13

If you having problems with spot retail brokers then you may want to look at a more regulated sector, such as Currency Futures and/or obtain a Prime Brokerage account with one of the big banks and trade the real interbank market.

I think you're under estimating the cost and commitment involved in starting a trading firm, let along establishing yourself as a broker. Regulations alone will deter you from the idea of starting a brokerage house.

Yes this all sounds good. I think starting a brokerage firm would be a huge mission even if it is only for trading your own trades. Its just when trading big sums you never know what is going on with your broker, if somthing goes wrong , is your balances insured? etc etc

I don't know for sure but I think starting a brokerage is very expensive as well. Like a cost of one million dollars for the price feed alone so I'm told.

Re fund security, you could try Citi. All deposits are FDIC insured. Only forex broker I know of that offers that.

The prime broker I am using is sipc insured for up to $500,000,000. Liquidity is phenomenal, and the rates are unparalleled from what I've seen out there.

If anyone is looking for a solution just drop me a line, Ill be more than willing to go into further detail.