How to create your own brokerage company?
Due to the active development of stock and financial markets in our country there are good conditions for the development of brokerage business. This is still a relatively free and promising niche, which is capable of generating great profits in capable hands and with a competent strategy.
Who are the brokers and how do they make money?
Now brokerage companies actively work in the sphere of finance, insurance, foreign trade. The most popular variant of brokerage business today are companies providing brokerage services in the field of currency, shares and securities trading. At the very beginning of the article, we specifically refer to the choice of a broker to make sure that the reader is already satisfied with the needs of the most exquisite traders and with the high level of competition in this business segment.
In fact, brokers are intermediaries between buyer and seller who make money from transactions. The brokerage company acts as a link between the market and the client. A broker can make transactions in the market on behalf of a client, and the latter can pay a brokerage company for access to the market and service. In addition, brokers provide clients with the services:
1) Software for trading on the market;
2) Financial means on credit (forming leverage)
3) Market analyst, etc.
A broker’s earnings consist of a percentage of the transaction. Regardless of whether the transaction was successful or not, the broker will still get its own interest. In the presence of a solid client base, these intermediary activities bring considerable income. Especially if you are constantly and systematically working towards increasing turnover.
What do you need to know before you start creating a brokerage company?
First of all, it is necessary to study carefully the theoretical aspects of brokerage activities and all the nuances of opening such a company. You do not need to be able to trade on the market yourself, but you need to know the basics of exchange trading. It is also necessary to carry out a preliminary assessment of the selected market niche, trace its main trends, familiarize with the forecasts of competent experts for the next 2-3 years.
It will be very useful to analyze the activities of potential competitors – large brokerage companies. Learn their work patterns, what and how they offer, what they do to attract clients, etc. So we’re gonna need a lot of marketing research. It will allow you to get into the brokerage business, learn many tricky secrets and chips. Based on this information, you will be able to develop a unique offer for your customers that will allow you to stand out from the competition.
As in any other business, proper planning is very important when opening a brokerage company. So after studying the theory, it’s time to start your brokerage company’s business plan. Competently drafted business plan, which will determine the stages of creation and development of the business, taking into account all the costs, will allow you to objectively assess the essence of the work, its strength and financial capabilities.
To open a separate brokerage company will require a solid start-up capital, as well as funds for office equipment, promotion and advertising. These costs are significantly reduced if we open a branch of a large broker rather than an independent company.
In general, the process of opening a brokerage company consists of the following stages:
1) Selection of a business model for brokerage activities.
2) Legal registration and licensing of the company’s activities.
3) Rent or purchase of office space, its arrangement.
4) Selection of employees.
5) Advertising campaign to attract clients.
Most often brokerage companies work with their clients online. But nevertheless, there is a share of clients who are willing to invest their money only after a personal visit to the company’s head office or representative office.
Therefore, special attention should be paid to the choice of premises. Keep in mind that in it you and your team will not only work, but also accept clients. The office of the brokerage company should be universal: it can include not only bacon office, but also a training center, and a consulting center and a cash desk for financial transactions.
Brokerage business models
There are 3 popular types of brokerage companies. Each of these business models has its advantages and disadvantages.
1) Own independent company.
This is the most expensive option. Authorized capital – minimum 5 million rubles.
2) Franchising (official representative)
This option will cost you much cheaper (about 0.5 million rubles). The essence of this model is to open a representative office of a major foreign broker in your region. This minimizes your financial risk and costs. The company’s profits will be shared equally between you and the main broker. There are also separate programs that allow you to open even your own brand, but use the filling (software, liquidity providers) of the parent company.
Legal subtleties of registration of a brokerage company
In order to perform brokerage activities, you must first obtain a license from the state in which you plan to promote your services. If you are not starting an independent enterprise, but a branch of a large company, this problem is much easier to solve.
You need to have a license to get one:
- Qualified employees who have undergone special training;
- a sufficient amount of personal funds
- the necessary technical support.
The next important legal aspect of opening a brokerage company is the registration of a legal entity. Most often businessmen conduct legal registration of their companies in countries with favorable laws for their existence. These countries are offshore. It’s easy to register an offshore location. The cost of registration of the company is from 600 to 2000 USD. For example, there’s /redirect/aHR0cDovL3d3d3dy5vZmZzaG9yZXdlYWx0aC5pbmZvLw==
Once the parent company is registered, you must register legal entities in the countries where you plan to do business. Under this scheme, taxes in the country where your main activity is carried out are paid only from the profits of the legal entity registered there. Her profit is just a reward that the main parent company pays her to “retransmit” its services there. This remuneration is only 1-2% of the profit of the main offshore company.
That is, in fact, only 1-2% of profits are taxed. It’s profitable, isn’t it?
Let’s return to the registration of the “2nd level” company in the countries where your main activity takes place. Here – the process of registration will be extremely heterogeneous, as each country has its own laws and sets its own requirements for the registration of a legal entity. Speaking of Russia, there are several options to choose from: IP, LLC, CJSC, OJSC
The choice of the legal form of the brokerage business is not limited by law. Naturally, before you make your choice in favor of this or that form, you must objectively assess all the pros and cons of each of them. The amount of taxes and the amount of the share capital will depend on your company’s OFF first of all.
Specialists recommend that a limited liability company should be preferred. This is the best option for this business. It is also possible to register an individual business, but in this case you will be responsible for all debts of the company. Accordingly, by opening an LLC, you are exposing only your authorized capital.
The certificate of registration and other documents must be submitted to the Federal Financial Markets Service.
In order to legalize your business, you need to operate in legal categories, in which competent organizations or people can help you. Lawyers should not be spared, because they will build the entire legal “foundation” of the company, think through various moves (for example, God forbid the process – bankruptcy of the company, its liquidation, or even re-registration from one offshore to another.)
A brokerage company will need software of different “origins” to trade in markets and make transactions. The software is purchased from developers specializing in a particular industry.
An approximate set of products for successful competition will be as follows:
- Trading terminal with exchange data flow (including spreads and swaps)
- Personal account for traders on the site with its binding to the terminal
- Customer communication programs (Live chat)
- Graph for analyzing trading instruments by site visitors
- Economic calendar for site visitors
- Financial news flow for clients
- External site for webinars
The most expensive article is the purchase and setup of the trading terminal. For example, buying a license for the Meta Trader 4 trading platform costs about 200 000 USD. Of course, MetaQuotes – the developer of the popular terminal – has all kinds of credit programs that allow investors not to spread out the entire amount of money, but to pay over time, for example, 1-2 years.
Of course, you can use some other products and save money, but you will obviously lose some of the potential customers who are used to working in MT4.
Financial transactions. Deposit replenishment. Merchant account
A brokerage company must have its own bank accounts. To open them it is important to choose a reliable and stable bank with a successful long-term activity. This minimizes the risk of financial losses in the event of economic crisis and other adverse conditions. It is best to open a corporate bank account in an offshore bank at the same time as opening a legal entity. It’ll cost you less.
Opening a special account in the payment system – the so-called Merchant account – will help to increase business efficiency. It is a trading account that is linked to a bank account.
Merchant account is a special type of bank account created to accept payments from customers. Actual is a tool for the most convenient and fastest payments on the Internet, which we regularly conduct with you to pay for certain services. It can be opened in any aquarium bank. Such banks have access to closed banking networks such as UnionCard, MasterCard, Visa and carry out settlements with plastic cards.
With a Merchant account, you will make payment for your services more convenient for customers. They will be able to replenish their deposit via the Internet, using credit cards MasterCard, VISA, American Express, etc. In addition, your company will be able to accept payments regardless of whether the bank works, that is, around the clock, without holidays and weekends.
To automate the process of payment acceptance is possible thanks to a special software complex – payment gateway. It’s being developed by a payment system. The most popular examples of payment gateways – all known PayPal or Webmoney, Robokassa, LiqPay, etc.
Processing of online payments and transfer of clients’ funds to the company’s account will be provided by the processing center. He will coordinate settlements between the client, the company and the acquiring bank.
As a result of payment processing the specified amount is withdrawn from the client’s account and transferred to the Merchant account via the payment gateway. Payment card processing services are now offered by many providers, so there is plenty to choose from.
Staffing of the company. Attracting new customers
Brokerage activities in the Forex market can bring high income only if you select the right and appropriate personnel for certain positions. In a team, each type of employee should be responsible for his or her own field of responsibility.
Here is an approximate composition of employees by main types of functions, without which the successful development of the company is impossible:
1) Programmers to create and develop the site and to set up the trading terminal
3) Financial Director to control operations.
4) Marketing specialists forming the strategy of company image creation
6) HR – Director
9) Customer relationship managers
and many others..
The key category is customer relationship managers. These are the people who will eventually attract new customers.
It is necessary to “squeeze” out of these employees at most. And it is done very simply: it is only necessary to create conditions for managers to be interested in attracting new clients to the company. Of course, the best motivation for such employees is the system of incentives, in the form of accruing them a certain percentage of the trade turnover of the client they attracted. In fact, it is a model of partnership programs, when the clients involved, then work for a partner. This model, in contrast to the usual salary, increases the efficiency of a person in several times.
In a company, everything should be based on such motivational mechanisms, then success will be inevitable.
Clients and their training
Almost all brokerage companies have to deal with absolute beginners of the Forex market. The company’s task is to raise these people and explain to them the basic principles of trading on the market.
For this purpose, companies pay great attention to the educational process. The training can be conducted both online and offline.
Types of online training:
2) Educational articles
3) Dictionary of terms
4) Training literature in electronic format
Types of offline training:
1) Seminars and workshops
Organizing the process of training their Forex clients online is a much more economical process than training their clients offline.
In the first case, you only need to create a number of full sections on your site. Comfortable, functional and informative. Articles, dictionary and book catalogues can be formed with the help of several authors and editors. To hold webinars, you only need a few presenters and an outside area to hold them.
Offline Forex trading training is a costly affair. However, there are people who do not see the learning process differently than in an educational institution, sitting at the desk. If you don’t want to lose these customers, you’ll have to deal with the equipment of the training center. You can use the space in your central office to organize the work of such a place. In order to create training centres in remote cities, it is possible to use the resources of partners in a given city and work with them according to the same motivational scheme.
Experience shows that the maintenance of the training centre is most often achieved by attracting larger clients who wish to take an individual training course or a small group program. Large deposits are characteristic of clients of this “offline origin”, since, last but not least, there is an element of emerging trust in the interaction of living people.
Forecasts and recommendations for the development of the brokerage business
In the last few years, working as a trader has become very popular in our country. More and more people are leaving their previous jobs with stable salaries and are switching to computers to trade on the stock exchanges remotely. And this trend will grow in the coming years.
The growth of popularity of the Forks market among the population of Russia is the fastest in Europe.
Opening a brokerage company is a clear and simple business model. Living in Russia and taking into account the specifics of our country, we can clearly see the trend of exclusion of the population from unstable earnings, which are formed at the expense of imperfect state mechanism. Russians want to try their hand at another dimension, where responsibility for their future can be taken into their own hands. This dimension is certainly Forex.
Perhaps for those readers who know English, it would be useful to read the business plan to create a brokerage company from scratch, proposed by Boston Technologies, one of the most famous companies to create software for back offices of brokers. You can download the Business Plan here.
Besides, you may be interested in the article “How to earn on Forex affiliate programs”