White Label for brokers from scratch: what to consider
Author: Ivan Egorov
When a future broker decides to step into the business and start their own company, often the first thing that comes to mind is White Label (WL). Going with WL makes sense financially for investment and hedge fund companies too, as WL-provider takes care of the technical side, enabling them to focus solely on the commercial side of the business.
At TFB, we receive daily requests from potential brokers looking for information and some guidance. So we decided to create this article where we would outline the essential steps for WL brokers.
For your convenience, the article is divided into 3 parts: start-up, experienced, professional broker. The list below serves as a guide to all potential WL brokers, and please note that not all of the services listed are provided by TFB.
We would classify start-up brokers as anyone who is only thinking about potentially starting a brokerage business but does not have enough information about the market yet and does not have previous brokerage experience.
1. Company registration
Start-up brokers must register a company before they do anything else. Many brokers start with offshore jurisdictions as these are typically easier and cheaper to operate in.
Running a business in regulated countries requires an expensive license, more funds, and every formality usually takes more time. We see many starting brokers establish themselves within the offshore and then move to more regulated markets as their company and revenue grow.
Wherever you establish your business, make sure you have all information about reporting that you will be required to provide to the regulator.
2. Trading Platform
The trading platform is the basis and the most critical component of any brokerage business. The choice brokers make at this point will define how many clients they will have and the amount of money they will make.
It is possible to purchase a license and fully own the trading platform. That gives complete independence to brokers, but it is a very expensive route. An alternative to that would be White Label, which enables brokers to access the fully functioning trading platform at a fraction of the cost.
Which platform you choose is up to you, but we would recommend researching the platform and its vendor before making any purchases (how popular is it among traders, the infrastructure around it, what are people saying online).
It’s important for the platform to have a variety of plugins and applications compatible with it. Also, don’t hesitate to ask a platform vendor to provide a demo to test it carefully before making a final decision.
3. Business model
It is important to decide what kind of broker you would like to be: A-book broker, B-book broker, or a Hybrid (A+B book).
A-book brokers are intermediaries. They focus on increasing trading volumes and make the same amount of money from winning and losing clients. Their profit comes from commissions, markups, and spreads.
B-book broker is essentially a counterparty to the traders. They bet against their clients and have higher risks.
Most brokers practice a hybrid (both A- and B-book) model to limit their risks and maximize profits at the same time.
4. Technology provider (Bridge and Risk Management software)
White Label brokers need a reliable and knowledgeable technology provider of bridge and risk management software. These solutions are responsible for the fast and seamless execution of trades, managing risks, and collecting data for regulators.
5. Liquidity Provider
Liquidity Provider is another factor that enables quality price feed and fast execution. High-speed price feed from a reliable liquidity provider can attract professionals and protect brokers from arbitrage traders at the same time.
6. Back office/CRM and Client Area
Every brokerage company requires a back office to manage deposits, withdrawals, client accounts, bonus programs, commissions, and more. Not having back office systems in place results in stress, errors, and loss of profit.
Client Area is required for traders to deposit their money to brokers. Forex broker world is highly competitive, so if you do not offer a convenient portal for your traders to deposit money and perform other admin tasks, they will most likely prefer your competitors.
7. Payment system
Arranging a payment solution might not be as easy as you think. There are additional obstacles depending on where you are located, the type of license you have, and the location of your clients. More developed markets tend to be highly regulated, which means more financial control and laws. Even without government control, some banks take it upon themselves to enforce additional limitations and formalities to protect their clients and themselves from any fraudulent activity.
Arranging a payment system is especially tricky for offshore brokers, as these are considered suspicious by many banks and financial organizations. We recommend looking into crypto payments, e-wallets recognized by the clients’ countries, and payment solution providers (PSPs).
An experienced broker already has previous experience in the brokerage world, knows key terms and mechanisms, and is aware of what is required to start a business.
To experienced brokers, we would recommend taking a look at the following solutions:
Just like we said before, the bridge is one of the key components for brokerages. In the beginning, many brokers opt-out for a bridge configuration that is included in their White Label partner offering.
Experienced brokers can benefit from full access to the configuration of the bridge. They should be able to adjust markups, routing and control trades execution. It adds to the flexibility and helps brokers stay in full control of their operations.
2. PAMM and Copy-trading solutions
Traders today range from highly experienced risk-takers to careful beginners who are only testing the water. To cater to the low-risk client group, brokers often take to money management tools, such as PAMM or copy-trading solutions. These allow less experienced investors to replicate advanced traders (with copy-trading functionality) or trust those traders with the money (via PAMM) and enjoy the end results.
3. Deliverable crypto instruments
Slowly but surely, crypto trading is becoming more and more spread and accepted. This means that to meet the current market demands, new brokers must offer crypto trading. Providing deliverable crypto trading would give an excellent opportunity for a broker to stand out.
A professional broker has been operating on the market for multiple years and knows everything about the brokerage business. Such a broker has all the instruments he needs and now requires additional products to elevate his company to the next level.
1. Business Intelligence system
Systems such as Business Intelligence help brokers increase their revenues, cut costs, and optimize risks. These products are often the reason behind higher profitability, better broker margins, and various crisis preventions. At TFB, we have a Brokerage Business Intelligence (BBI) solution that monitors clients’ activities, notifies brokers about any abnormal behaviours, providers reporting for internal use, and regulators.
2. Advanced Risk Management software
Professional brokers know the game rules and understand how to win on the market. Now it is time to look at the advanced tools. Depending on your bridge selection, these features might already be included in your current solution.
At this point, it makes sense to look at dynamic leverage, switch between A-book and B-book, and Volume Consolidation between different Liquidity Providers. All of these features will maximize brokers’ profitability if used wisely. They also represent a high risk, so we only recommend them for professional brokers.
3. Custom-made solutions
A professional broker knows the market, knows what works and what does not. More importantly, a professional broker understands what is missing on the market.
Brokers who are the first to offer innovative solutions to common pains quickly rise to market leaders. At TFB, we offer custom development solutions, so if you have any ideas, we would be happy to help you bring it to life.
We hope that this guide will help the potential brokers get started on their White Label journey.
TFB offers a White Label package that includes a branded MetaTrader terminal, bridge connectivity to liquidity providers, risk management solutions, and 24/7 technical support. You can read more about our White Label solution or email us at firstname.lastname@example.org.
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