There are many cohesive elements to FX brokerages, many of which have defined the overall playing field, which range from offerings to traders to fundamental strategies to obtaining clients. However, the impetus behind starting a brokerage does vary from company to company, as well as the success behind each venture.
Finance Magnates spoke with Eric Harbor, CEO of Techforbrokers, for his perspective on the cutthroat FX industry, detailing his stance on the longevity of brokerages and the headwinds they face in today’s industry. His full-length interview can be read below.
Why do individuals start brokerages or are most primed for success?
“Many individuals have realized that they could make more money in the foreign exchange (FX) industry by being a broker themselves. For example, running a business can be a double-edged sword and while there are many users can have access to bonuses, perks, etc., you see many people liking products or offerings while others write negative things about the same offering.
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A lot of people also wrongly assert that everyone will lose their money in FX, especially as brokers. Of course there are many brokers in various locales that do better than others and there are some that are in countries like Indonesia and Vietnam that make millions because everyone else there is losing their money.”
Running a business can be a double-edged sword
Many clients are prone to voicing grievances, can you identify some points of contention that are typical of normal traders against brokers, or vice versa?
“In my experience in running a brokerage, I feel it’s best to give individuals a legitimate price which will often times leave the majority of users satisfied. In terms of brokers, people have no right to complain if others are making money, as I tell them if everyone is making all these profits then there is nothing stopping them from doing it themselves.
In terms of specifics, with my partners there is just a set up fee or do it yourself fee month-to-month, and you are a market maker and take the market risk. Furthermore, affiliates can make over $1000 a month and it’s the cost of business. For binary options however, $1,000 a month is ridiculous and binary technology is so expensive.
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By extension, options, or traditional vanilla options are a new thing in FX because they are harder to get your hands around. However, to offer this service, it’s a steal of a lifetime. You can simply book a business especially for these affiliates, which is the largest component of your business. If they can keep all profits and put up $1,000 a month it’s a very good deal, and as I always say put your money where your mouth is. With the economy the way it is, if you are an advertiser, everyone has a community of friends and they can gather and have a very good deal.”
Is competition a stifling factor or a beneficial force for the FX industry?
“Ultimately, you just have to experiment because there is so much competition in the industry. I opted against a no-deposit bonus because I wanted people to experience being a trader. You have the warnings at the bottom of page and all these risk warnings so these are things you also need to make known. In my experience I wanted people to have multiple varieties, or a trading bonus to see if they could become a trader, with a demo account. With a $1,000 no-deposit bonus with 10:1 leverage, you can make a lot of money in FX with low leverage, no expiration date.”
How do brokers grapple leverage, spreads and is there an ‘acceptable’ level in which many groups offer?
“I also see on different websites what other brokers are doing. A lot of brokers offer FX agency models or STP models, lower or zero spreads. What traders don’t realize is that if you are being offered a very low spread and agency spread the broker doesn’t make a lot of money. So where is a broker’s incentive? Brokers want individuals to trade fifteen times a day or turn a lot of volume, so if you use 10:1 leverage there is no way to overtrade.
People trade with more immediate gratification
People trade 10:1 because marketing is generated by brokers. Traders go to websites, other traders, etc., and there is no social reinforcement for realistic success for trading with 10:1 leverage. 10:1 leverage is still very high, you won’t see that at a bank if you buy a house, nor will you make a million dollars but people are not trained to hold their trades in a longer manner. Because of the way the industry is, people trade with more immediate gratification. Everyone just wants to raise their leverage, they are all in a hurry. Traditional brokers do not make a lot per customer and personally I feel people trade too much.”
What is your stance on bonuses, are they a viable way of enticing traders?
“Moving to the merits of bonuses, I have found that bonuses aren’t for everyone – a 200% bonus has lots of strategies brokers don’t like, which can devolve into a poker room with all profits between traders – I have found Trading Challenges are better suited. Deposits aren’t refundable and brokers simply take a percentage to keep offers active, tournaments, games, etc., however you are seeing a cumulative group of investment and payout for top people. A lot of brokers are trying to get people through the door. What I noticed was you often do get a lot of traffic but also a lot of upset people and when you don’t focus on FX, you just spin your wheels.
You often do get a lot of traffic but also a lot of upset people
Finally, I’ve tried to get my hands off of the automated process for past three years and it now doesn’t exist at my company. You have to talk to each client or email them everyday, maybe two or three times a day. We send them lots of things and we don’t drive them crazy. However, FX guys don’t sleep so they are always there, these aren’t trading signals either, everyone has those, you have to share with them that they are real people. You need to always be engaging with them, for example 500 different ways to engage with them, SMS, email, advertising, new offers, people love these.”