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revenue of an fx broker

  • #1
  • First Post: Sep 7, 2015 10:53am Sep 7, 2015 10:53am
hello guysdo you know how mutch is the profit of a fx broker if say the spread in average is 0,5 pip and a monthly trading volume of 100B $ ?is just curiositybest regards
  • #2
  • Sep 7, 2015 11:58am Sep 7, 2015 11:58am
The three main things on which it depends are ...

1. Whether they're really a broker (someone who executes trades on their clients' behalves in an underlying market) rather than a counterparty market-maker trading against their own clients, and ...

2. What commissions they charge and/or what their sp-reads are, and ...

3. The number of trades executed (collectively, they make overwhelmingly more from scalpers, for example, than from positional traders), which in turn depends on their marketing and PR and on the types of clients they're trying to attract.
  • #3
  • Sep 7, 2015 12:42pm Sep 7, 2015 12:42pm
Quoting Xela
3. The number of trades executed (collectively, they make overwhelmingly more from scalpers, for example, than from positional traders), which in turn depends on their marketing and PR and on the types of clients they're trying to attract.
Number of trades doesn't really matter, it's the volume (which was mentioned). Scalpers simply make more volume because they do more trades and usually also of a bigger size than the longer term folks.

Regarding 1) right, but most brokers (or shall we call them FX betting parlors?) are both. It's a very common thing to not execute every order in the market but instead just managing risk by hedging the overhang - which is a great way for the broker to minimize his trading costs.
  • #4
  • Sep 7, 2015 12:59pm Sep 7, 2015 12:59pm
hi guys

you are right;i asked this question to a sales manager of a fx boutique,and told me with that trading volume abd that spread monthly(if the monthly trading voluke dont change) 90000 $,but o can t trust this amount of money,i mean if with that amount of koney in one year i make 900000 $,FXCM have around 500B $ and if the spread is the same make 4.5M $,woth that amount of money you can t pay the around 800 employees LOL;what do you think guys?
  • #5
  • Sep 7, 2015 1:13pm Sep 7, 2015 1:13pm
Quoting JensG
{quote} Number of trades doesn't really matter

It matters hugely if they're really a broker, because (unlike the position of a counterparty market-maker, of the type used by many of this forum's members, who mistakenly refer to them as "brokers", perhaps not quite appreciating the significance of the difference between the two types), the number of trades - as well as their magnitude - is part of the primary determinant of a real broker's income: that's the underlying basis according to which they earn their own income.
  • #6
  • Sep 8, 2015 4:34am Sep 8, 2015 4:34am
yes guys you are right;but i don't understand how is it possuble to make only 90K $ with a monthly 100B $ and a spread/commission of 0.5 pips? in your opinion what is the formula to knw how mutch is the profit of a broker ECN if we know the spread and the monthly trading volume?


best regards
  • #7
  • Sep 8, 2015 4:39am Sep 8, 2015 4:39am
Quoting Trader20595
hello guys do you know how mutch is the profit of a fx broker if say the spread in average is 0,5 pip and a monthly trading volume of 100B $ ? is just curiosity best regards
Vol 100B = 1M standard lots1M X (5 (spread) + 5 (commission)) 1M x 10 = 10,000,000 per month in revenue from spread and commission fx brokerage is extremely profitable...
  • #8
  • Sep 8, 2015 4:51am Sep 8, 2015 4:51am
Quoting Trader20595
yes guys you are right;but i don't understand how is it possuble to make only 90K $ with a monthly 100B $ and a spread/commission of 0.5 pips? in your opinion what is the formula to knw how mutch is the profit of a broker ECN if we know the spread and the monthly trading volume? best regards
first: volume is in lot not $
1 lot = 100000 $
if spread+commision+swap = 0.5 pips
for 1 lot ===> 1*0.5*10 = 5 $ and the same for closing position ===> it would be 5+5= 10 $ for 1 lot (this is true for eurusd but for gbpxxx this would be different also for every pair the result is different even if the spread be fixed it would be different)

by the way: real brokers should pay a small percantage of the spread/commision to the banks or liquidity prividers, so it is hard to evaluate their income by simple valune and spread
  • #9
  • Sep 8, 2015 5:02am Sep 8, 2015 5:02am
Quoting Trader20595
yes guys you are right;but i don't understand how is it possuble to make only 90K $ with a monthly 100B $ and a spread/commission of 0.5 pips? in your opinion what is the formula to knw how mutch is the profit of a broker ECN if we know the spread and the monthly trading volume? best regards
You speak about "making money", well, do you mean turnover or revenue? Huge difference. While I have no doubt that a brokerage or especially those betting parlors can be huge profitable businesses it's a lot more complicated than simply calculating some possible turnover from spread markup or commission.

Quoting Xela
{quote} It matters hugely if they're really a broker, because [...], the number of trades - as well as their magnitude - is part of the primary determinant of a real broker's income: that's the underlying basis according to which they earn their own income.
I still do not understand. A real broker earns from commission or the markup on the spread (which basically is the same just in a different packaging) both are relative per trading volume. Lets say I pay 15 per million, it doesn't matter if I do the million in one trade or in 200 like the typical retail customer - when speaking about turnover.
  • #10
  • Sep 8, 2015 6:16am Sep 8, 2015 6:16am
Quoting JensG
I still do not understand.

I know. Sorry.


Quoting JensG
A real broker earns from commission or the markup on the spread (which basically is the same just in a different packaging) both are relative per trading volume.

That statement's true, in so far as it goes, but it doesn't detract from the equally valid observations I made above.


Quoting JensG
Lets say I pay 15 per million, it doesn't matter if I do the million in one trade or in 200 like the typical retail customer - when speaking about turnover.

No; this one isn't necessarily so. It depends on the broker's commission structure. The correlation between the client's position-size and the broker's commission-size isn't necessarily 100% as your statement tacitly assumes. You can pay more in commission, collectively, for trading 1 lot 10 times than you would for trading 10 lots once (and I think this is probably the point you've missed?). For this reason, the number of transactions can actually affect the broker's income.
  • #11
  • Sep 8, 2015 6:25am Sep 8, 2015 6:25am
@Mingary, your formula make sense good amount of money;if we give 1M to liquid providers we have 9M $ monthly,it is VERY profitable
@tablet8,yes you are right but i considered an average spread of 0,5 pips for every pair
@JensG;i mean revenue or Net Profit
but generally and in net profit monthly you gave some millions;and we aren t consider market makers volume...
  • #12
  • Sep 8, 2015 7:28am Sep 8, 2015 7:28am
@Xela: thanks. Never came across a broker where number of trades did matter but well, maybe it's because I'm doing FX only.

Quoting Trader20595
@JensG;i mean revenue or Net Profit
Okay, so don't forget that revenue is just a small portion of the turnover in most businesses. I don't know any average number for brokerages but I guess/heard that the MT4 license is relatively expensive, then there is collateral you need for your liquidity providers, the usual amount of stuff for handling the day to day business and taking care of potential new customers (mostly call center which you can or can not outsource to somewhere where it's cheap - depending on your quality considerations). I wouldn't underestimate the running costs, especially for newer businesses. Considering that bigger volume traders are usually very picky in where they open accounts and the average microlot retail crowd won't get you too far I believe it might be quiet hard to get near anywhere of proper volumes.
  • #13
  • Sep 8, 2015 1:58pm Sep 8, 2015 1:58pm
@jensG;you are right;in this period i asked some fx consultancy about start an fx broker,they told me that with under 100K $ i can start an fx broker business,and to start it is better to have a virtual office and when the broker grow to use a phisical office;so in my opinion with 100-150k $ i can start broker;but guys with that amount of money(say 100K $) do you start an fx broker or do you trade fx?


best regards
  • #14
  • Sep 8, 2015 2:17pm Sep 8, 2015 2:17pm
Mate, to be brutally honest with you: If you have to ask in a forum (especially in one like FX factory) about how to calculate the possible turnover, you're not in a position to start your own brokerage regardless whether you have the 100k or the 10m under your mattress.

Do you have any idea how to get customers in that field? Yeah well, FXCM is bloody big, so what? The market is saturated so your chances to get equally big are practically non existent. And I do not think you'll get far with 100k.
You could try as an introducing broker in case you're a marketing genius, if you're not you'll need that 100k to pay for one if go full. Running a business is mostly marketing nowadays, you fail there, you fail completely.
Sorry but that's just the truth.
  • #15
  • Last Post: Sep 8, 2015 4:01pm Sep 8, 2015 4:01pm
Quoting JensG
Mate, to be brutally honest with you: If you have to ask in a forum (especially in one like FX factory) about how to calculate the possible turnover, you're not in a position to start your own brokerage regardless whether you have the 100k or the 10m under your mattress. Do you have any idea how to get customers in that field? Yeah well, FXCM is bloody big, so what? The market is saturated so your chances to get equally big are practically non existent. And I do not think you'll get far with 100k. You could try as an introducing broker in case you're...
yeah it is true;the marketing is everything;in this situation maybe trade fx is better LOL;but in my opinion even someone start NOW an fx broker and spend some cash(maybe 50k $) for marketing,in the end of the year can do a good amount of money i think but maybe i m very optimist
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