How to create a broker?
Keys to success
What is a broker?Surely on more than one occasion, you have heard the term broker, but very few people know its functions in depth. And do you know what a broker is? A broker is a financial agent between the trader and the market. The broker provides the trader with a trading platform where to invest, and a series of services such as market analysis tools, charts adapted to the trader’s needs, or price history. In recent years, thanks to the democratization of investment, brokerages have become an increasingly popular and profitable business. In addition to providing the trading platform and the necessary tools for a person to invest, the broker offers extra services to its clients such as training, courses, investment tools, market analysis, to mention the most common ones. How do brokers make money? Brokers earn a commission for the service they provide to their clients. Among the most common are: commissions for opening and closing positions, for buying volume, or for acting as a counterparty. Other income that brokers receive is through the aforementioned training courses, consultancies, investment plans, etc. These services also vary depending on the broker. Now that you know what a broker is and its basic characteristics, you may wonder how you can become a broker. This question will be answered in the next section.
How do brokers make money?Brokers earn for the service they provide to their clients. Among the most common are: commissions for opening and closing positions, for buying volume, or for acting as a counterparty. Other income that brokers receive is through the aforementioned training courses, consultancies, investment plans, etc. These services also vary depending on the broker. Now that you know what a broker is and its basic characteristics, you may wonder how you can become a broker. This question will be answered in the next section.
How to become a broker?If your dream has always been to become a successful broker, here’s how to do it. To become a successful broker, you need to know about the forex market. It is not required to have an academic degree to become a broker, but you must learn how to read price charts, trade signals, know the basics of fundamental analysis, risk-reward potential, and money management. It is also important that you know the technical language of the markets. For example, there are basic aspects to consider such as forex licenses, technological solutions, corporate solutions, and liquidity providers that you can access. Understanding this language is vital for anyone aspiring to become a successful broker. Once you start to master the most important aspects of this activity and you know the answer to the question of how to become a broker, the next step is to know how to become your own broker.
How to become your own broker?Now that you have the basic knowledge and you are convinced that this venture is for you, it is time to start learning about the practical process. We recommend the following article to learn more about this topic. For now, here are the elements that you should consider to start your broker. It is important that from the beginning you have defined your market niche and the necessary capital to start operating. Having a budget will help you choose between starting the whole process on your own or relying on a White Label Solution, a proven and ready-to-market software. Now that you have the basics in place, the next step is to register your business and a bank account that allows you to make and receive transactions anywhere in the world, develop the technology for your broker to work with a technology provider and you will also need a good liquidity provider to be able to operate. These are the summarized steps of the answer to the question “how to be your own broker“. In the next section of the article, we will go into the steps to establish your own online broker more concisely.
How to create a broker in five simple steps
- Create a business plan: As in every business opportunity, it is recommended to create a business plan that helps set a path and a defined strategy to check and see if our plan is profitable.
- Creation of a legal entity: A broker can be both a real person and a legal entity. The majority of brokers opt for the legal entity, since it is advisable to create a company.
- Obtaining the necessary licenses: Once the legal entity has been created, it is necessary to obtain the necessary licenses. Thanks to the European jurisdiction, obtaining the license in any European country will be enough to operate in all Europe, therefore, the easiest thing is to acquire the licenses in countries with a simpler regulation, such as Malta, Estonia, Cyprus or others.
- Trading platform: for our trading platform, we can choose between developing an in-house platform or choosing an existing provider; currently, the most popular provider is MetaQuotes, which currently has two versions available for sale, MetaTrader 4 (MT4) y MetaTrader 5 (MT5).
- Hire a liquidity provider: The task of the liquidity provider will be to give us access to the interbank Forex market. Here we will have to decide if we act as market makers, that is to say, we take counterpart in the transactions and therefore more risk, or simply pass the operations to the liquidity provider and keep the spread or commission.
Four keys to success when creating a brokerAfter the creation of our broker, the most important thing will be to offer the best features and services. We will have to focus mainly on:
- Coose the best platform: Although developing our in-house platform may be attractive, it is a long, expensive process and except for very specific needs it does not compensate for the use of a platform like MetaTrader. As for choosing the best platform, contrary to what you might think, MT5 is not an improvement over MT4, each one serves different purposes because while MT4 is designed specifically for Forex and simpler, MT5 is intended for a wider range of trading purposes such as CFDs, futures and stocks.
- Have the best features: In addition to a trading platform like MetaTrader, we will need tools, plugins and features needed to make the broker work and be successful, for example: social trading, Pamm, IB, binary options plugin…
- Have stable liquidity with no ups and downs: For this it is advisable to have agreements with several liquidity providers to ensure that we receive the best spreads.
- Having a bank account in order to dedicate ourselves to both B2C and B2B business.
Now that you know how to create a broker, what else do you need to do?To sum up, creating a broker can be a very profitable business if it is done correctly and the right decisions are made. If you are interested in starting a trading platform, at Smart Broker Solutions we have a wide range of services that go from acquiring the license, to the creation of a complete trading platform. Don’t hesitate to contact us.
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Smart Broker Solutions is a technology development company and does not provide investment services or investment advice. | Smart Broker Solutions es una empresa de desarrollo tecnológico y no proporciona servicios de inversión ni asesoramiento de inversión.