There are many ways to cut a slice of the Forex brokerage cake, but two models stand out from the rest as good choices for newcomers – becoming an Introducing Broker (IB), or building your own white label brand.
While both of these options have their own disadvantages, both of them can also yield some good profits. In this article we’ll go over them to make it easier to decide which one is more suitable to your needs.
The traditional Forex brokerage industry has remained relatively unchanged for decades. While brokerage houses invest great resources of money, personnel and technology in order to attract more and more traders, they are always looking for other ways to grow their business, and a partnership seems like an obvious choice.
This is where the IBs and white label options step into the market. They offer the primary broker an opportunity to increase their clientele and revenues in a shorter time and with much less effort.
Fundamentally, introducing brokers and white label businesses are quite similar. In both of these models, the broker’s goal is the same – to acquire, convert and retain end-users that will trade on the primary brokers’ platform.
In both cases, the more trading volume you have running through the platform, the higher the revenue of the broker, and as a result – the profit you will make. So the most important part of your business model would be to attract traders and keep them trading in your system.
The difference between the two models lie mainly in the scope of their functions, and in their degree of autonomy. While Introducing Brokers simply act as intermediaries between the existing broker and his traders, white label brokers are more full-fledged businesses, with greater independence and more control of their clients.
Let’s take a look at the pros and cons of each of these options.
At the most basic level, IBs are practically like marketing agencies which recruit traders to their broker partners. They help the traders with opening an account at the broker’s platform, and the traders’ deposits go directly to the broker’s side. IBs usually take their commissions from the broker as a fixed return per referred user.
There are multiple ways to refer traders to a broker – from email marketing campaigns, to banner advertising on the IB’s website, to awarding special promotions, etc.
Usually the broker will give the IB a unique ID link that will track new customers that the IB introduced, and will also grant him access to the broker’s promotional materials. More sophisticated IBs will create their own marketing campaigns for the broker and also manage sales and retention for him.
Becoming an IB is a good entry point to the Forex brokerage world for anyone with a base of clients interested in trading – from money managers and investment advisors, to owners of financial websites or forums that have a significant amount of traffic, and even successful individual Forex traders.
The set up and operating costs of an IB business are much lower than a regular brokerage, as they do not entail technology and PSP charges.
On the less favorable side, becoming an IB isn’t much of a plan for a big future in the Forex industry. “As an Introducing Broker you are essentially an agent of an existing business”, says Pablo Schvartzman, Head of Success Department at industry-leading tech provider Leverate. “You basically piggyback onto an existing broker and live off the commissions, without a brand identity or a brokerage infrastructure of your own. For people with serious ambitions in the Forex world, this is not the ideal model”.
White Label brokerage
White label brokers run their business at a whole different scale than IBs. For all intents and purposes, a white label brokerage is a full-scale brokerage house, with its own risk management, PSPs, call center, client support, etc.
White label agreements can range from simple trading platform leasing plus back-office support, to a wholly-owned brand.White label brokers make their profits from their clients’ volume, in the same way their broker partners do.
However, there are some limitations to their autonomy. Since they are only leasing the trading platform with its server and feed from a primary broker, they cannot control some key features – like which symbols they would offer for trading, and their opening and closing hours.
The white label broker also does not facilitate trading orders – all execution is made by the primary broker. But other than that, white label brands function like any other broker, and they call the shots regarding their trading conditions, spreads and commissions, and business structure.
The benefits of a white label program are numerous: you get a trading platform branded with your logo, you become instantly regulated under the umbrella of your primary broker, and you get his backing in terms of back-office support, resources, equipment, and logistics.
On top of that, your primary broker is also in charge of reporting, and all other administrative and regulatory procedures.
Revenue and compensation models are also far more flexible in a white label arrangement, and it all depends on the details of your partnership agreement. All of that, without the enormous hassle involved in opening a brokerage firm by yourself.
Obviously, the price of opening a full white label brokerage would be higher than an IB, and the procedure would require greater time and effort. But the reward is also significantly higher.
“Opening a white label brand under an existing brokerage is a relatively quick and straightforward way to enter the Forex brokerage market”, says Mr. Pablo Schvartzman. “It gives you plenty of room to grow your brand, and it’s an excellent stepping stone to become a fully independent FX brokerage business.
Leverate’s LXLite white label package allows new brokers to hit the ground running with instant CySEC regulation, and with no need to open a bank account and set up PSPs, as the broker can use ours. Brokers get extensive support from our expert team while they start accumulating clients for their brand and gain first-hand experience in the business. For aspiring Forex entrepreneurs, this is clearly the fast lane”.
Ultimately, the decision of which brokerage model to select lies in factors such as initial capital investment, risk management, and vision. While Introducing Brokers are in for an easier ride initially, it is the white label brokers who can establish themselves as a force in the market, with a view to becoming the prime brokers of tomorrow.
Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.