Six Months of Terror, the Life of a New Broker

What business strategy will turn you into an established broker?

You have some background knowledge and the potential is clear. OK, you have some available funds for the project and you are interested in starting your own brokerage. There are so many questions that you’ll need to ask yourself before the first FTD (First Deposit) is made. Even if you have given the right answers during business setup, the real challenge is to expand and overcome the “6 months of terror”, which starts at the first FTD.

Over the years I have seen so many brokers who start out with a big bang fail to keep going past the first 6 months. The industry’s unofficial statistics show that 83.7 percent of start-up brokers will not manage to become profitable businesses.

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It seems like your chances of success are much higher if you manage to become a profitable business within 6 months of operation.

Let’s go through some of the questions which you’ll need to ask yourself.

1. How much money do I need in order to start?

The answer is simple: Enough money to pass the first 6 months. Expect to reach the break even point no sooner than 6 months.

In real life it’s very hard to estimate your expenses. This is the biggest mistake that brokers make: failing to realize the expenses and time required to pass the “6 months of terror”.

Keep in mind that although some will try to present it this way, setting up a new business isn’t simple.

2. Who are the right people to hire?

Start with key functions only, in this order: CEO, financial analyst/CFO (Chief Financial Officer), Marketing Manager and Sales Manager. Do not proceed without them as they will help you answer the important and critical questions during setup. Hire only those who have the skills that you lack. I think Mark Zuckerberg’s phrase is appropriate: “Hire only those who you would be willing to work for.” Assemble the rest of the team at a later stage according to your strategy.

3. How many resources should I invest in being unique? 

I have heard this so many times: “Because there are so many brokers out there I must be unique in all aspects.” In most cases such a motto will lead to total failure. Face the facts, you can’t and shouldn’t develop your own trading platform and the same goes for your traders’ education and training, and the other services you offer. Trying to develop your own tools takes a lot of time and money, and will drain your initial funds very quickly. Still, you don’t want to start too lean. Based on the statistics, being unique by working on the packaging, marketing strategy and sales strategy using the best off-the-shelf products is great advice. Start thinking about technology development adventures when your business is established.

A Trading platform, Payments Service Provider (PSP), website building, education, news service and chat service are some of the major services and tools that you will want to take from an established provider.

To keep the article’s length reasonable I won’t elaborate on the required financial services.

4. Which marketing channels should I start with?

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Some people will come into the business with one marketing channel in mind. For example, an affiliate who wants to become a broker will think that he can rely on a strong affiliation program and he will focus on that channel only. While in some cases it will be a huge success, in most cases such an approach will shut you down. My suggestion is to build a multichannel marketing strategy. Paid marketing, organic marketing and affiliation programs are usually the main channels. 

5. What are the right KPIs (Key Performance Indicators)?

It is important to measure your progress and to adapt your business strategy in accordance with the results of your measurements.

Here are some suggested KPIs:

  1. The conversion rate should be around 15% for binary options brokers and 10% for Forex and CFD brokers.
  2. The 2nd time depositors’ percentage should be around 34% for binary options brokers and 39% for Forex or CFD brokers.
  3. The percentage of traders who remain active 6 months after FTD should be around 15% for binary options brokers and 32% for Forex brokers
  4. The LTV (Life Time Value) should be around USD1,500 for binary options brokers and USD4,000 for Forex brokers. 

6. Can I manage without a call center?

Although it’s every businesses’ dream, the answer is no. Only very few can manage without a strong call center.

The last thing you want in your new business venture is failing to monetize your investments in marketing and other services. Mainly in binary options but also in Forex, CFDs and other types of online trading, the call center will be a key factor that determines the traders’ ROI. A good call center can cover marketing mistakes. You don’t have to necessarily start out with a very large call center, it just needs to be a strong one. My best advice is to make sure you provide your call center with the right tools, like educational videos and courses, which they can send to their prospective clients. It is also wise to consult with a call center expert who will be able to assist you with the first steps.

7. Can I wait with retention?

Again the answer is no. Your ROI depends on your retention. Especially during the first stages your cost per acquisition is very high, and therefore, you should make sure you carefully plan your retention. Retention is mainly done using these three channels: Call center, e-mails, and engaging tools on your website and platform.

These are the main traders’ difficulties that you’ll need to address: lack of confidence, lack of familiarity with the trading platform, lack of trading knowledge, the failure to build and follow strategies. Luckily, all these difficulties can be overcome with the right incentives and educational tools.

8. Geo Targeting?

There are several factors which you need to take into consideration when choosing your geo-targeting, such us: regulation, internet accessibility, marketing costs, prospects’ mentality, among others.

Marketing and sales wise, no matter whether you are targeting China, Europe or the US, make sure your team is familiar with the target audience. Don’t target countries if you don’t have a representative who can make calls and do Q&As about your website and materials.

Recap:

It’s not an easy ride, but if you pass the 6 months of terror and become profitable it means you have asked yourself the right questions, answered them, and thus you may consider yourself an established broker.

If not, it just means that you are part of the majority.

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