forex broker business plan
TRANSCRIPT
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Table of Contents
Introduction
1. Forex Market 1.1 Market Size ----------------------------------------------------------------------------- 4
1.2 Market Description -------------------------------------------------------------------- 4
2. Starting a Brokerage 2.1 Business Model ------------------------------------------------------------------------ 7
2.2 Technology ----------------------------------------------------------------------------- 12
2.3 Finance --------------------------------------------------------------------------------- 22
2.4 Marketing -------------------------------------------------------------------------------- 23
2.5 Licensing & Incorporation ----------------------------------------------------------- 26
3. Company Procedures (Company Structure) 3.1 CEO -------------------------------------------------------------------------------------- 32
3.2 I.T (Technology) ----------------------------------------------------------------------- 33
3.3 Marketing -------------------------------------------------------------------------------- 34
3.4 Sales -------------------------------------------------------------------------------------- 35
3.5 Support ----------------------------------------------------------------------------------- 36
3.6 Finance ----------------------------------------------------------------------------------- 37
3.7 Compliance ------------------------------------------------------------------------------ 38
3.8 HR (Human Resource) --------------------------------------------------------------- 39
4. Implementation & Timeline 4.1 Planning & Documentation ---------------------------------------------------------- 40
4.2 Entity Creation -------------------------------------------------------------------------- 40
4.3 Office Infrastructure ------------------------------------------------------------------- 40
4.4 Technology Setup --------------------------------------------------------------------- 41
4.5 Operational Infrastructure ----------------------------------------------------------- 41
4.6 Staff Recruiting ------------------------------------------------------------------------- 41
4.7 Revenue Generation ------------------------------------------------------------------ 41
Appendix–Definitions--------------------------------------------------------------------------------- 42
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Introduction: TheFollowingdocumentisintendedtodirectandGuideApexum’sCustomerswhointendto
establishtheirownForexBrokerage,whetherit’sanexistingoranewForeignExchange
(Forex)brokerage,thisguidewillprovideinformationthatisdescriptivetowhichitwas
generatedthroughresearchandbestpracticeprocedures,throughthisdocumentApexum’s
clientswillhaverelativeinformationregardingmanyaspectsthebusinessneedstoachieve
optimummarketpresenceandvisibility.
Apexum’sRole:
ApexumisaTechnologyProviderthatbuilds,installs,maintainsandsupport’sanyindividual
seekingabrokerageorpartnership,Apexumstrivestoaugmentanyexistingornew
business,Furthermore,Apexumseekspartnerstoelevatetheirexistingpresenceinthe
marketthroughApexum’sInnovativeTechnology.
Apexumisneitherabrokernoratradingcompany,Apexumwillstrivetoelevateanyclient
withtherelevanttechnologydemands,ApexumwillneitherholdEnd-Usermoneyneither
willitinitiatetradesinanymanner.
ApexumisNOTaTradingCounter-party
Contact information: Address: Cyprus Markou Mpotsari,33040, Limassol, Cyprus Telephone: +(357) 25262280 E-mail: [email protected] [email protected] [email protected] Skype: apexum.sales
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1.ForexMarket:
1.1MarketSize:
ForexMarketisahighlyliquid,decentralizedmarket,whereitexceedsonaverage$5.3
TrillionUSDperdayintotaltrading,ForexMarketconsistsoftwotiers:TheInterbankand
wholesalemarket,andclientorretailmarket:
• Approximately39%oftransactionswerestrictlyInterdealer(i.e.interbank).
• Approximately53%oftransactionsinvolvedadealer(i.e.bank)andfundmanager
orothernon-bankfinancialinstitution.
• Approximately9%oftransactionwerebetweenadealer(i.e.bank)andanon-
financialcompany.
TheForexMarketisdominatedbythesecurrencies:USDdominantvehiclecurrency
tradedat88%,EURisthesecondbeingtradedat31%,JPYbeingthirdat22%.Themajor
marketsareLondon,NewYorkandTokyo.
1.2MarketDescription:
ForeignExchange(Forex)marketisanemerginganduprisingmarketwithnumerous
disaggregatedplayers,ithasexpandedby35%from2010to2013reachinganall-time
highof$5.3trilliontradedperday,TheForexMarketconsistsofmanysegmentsthatare
explainedbellow:
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CentralBANKS:
• Bank:LargeBanks(Institutionalplayers)thatareclassifiedasasegmentofthe
inter-bankingmarketwhichareaccountableof53%ofallforextrading,in
conclusiontheymakethemajortradesintheForeignExchangeMarket.
• Size:Rangingfrom8-10largebanksandinstitutionsestimatedtobetradinginthe
totaldailytradedsumof$5.3trilliondollars.
• BusinessModel:Twofold:buyingandsellingcurrenciestoeachotheraswellasto
largercorporationswhoneedtoexchangetheircurrenciesintoadifferent
nominationinordertosetapriceonparticularcurrencies,towhichareusedfor
speculation,hedgingandcurrencyexchangeforinternationalcommerce.
• Spread:Lowspreadonmargins(i.e.1Pip).Pricesarepurposivelysetwithless
variabilitythansmallerplayers.
• Regulation:Well-regulatedonForexoperations.
PrimeBrokers:
• PrimeBrokerage:Largecapitalfirmsthatspecializeinprovidingfinancialservices
andSourceliquidityfromavarietyofexecutingdealerswhilemaintainingacredit
relationship,placingcollateral,andsettlingwithasingleentitytothetrading
industry.
• Size:Rangingfrom15-25totalPrimeBrokerage’stradingForex.
• BusinessModel:Modelisbuiltonpracticeofrehypothecation.Furthermore,Prime
Broker’sProvidehedgefundswiththeabilitytoborrowstocksandbonds.
• Spread:Lowspreadonmargins(i.e.0.2–0.4Pip’s),thesespreadsarelowdueto
primebrokersofferingcreditandservicestotraderswhousuallytradeonECN’s.
• Regulation:Well-regulatedonforexoperations.
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PrimeofPrime:
• PrimeofPrime:SecondaryPrimeBrokerage’s(CapitalFirms)specializingin
providingservicestotraders(ForexTraders)whorequiremicro-contracttrades.
PrimeofPrimebrokerage’s(PoP)occasionallyallowtradesofgreaterleverage,to
whichitleadstoplacinggreaterrisk.
(SignificantdepositisrequiredtobeavailableinordertoaccessPrimeofPrime)
• Size:Rangingfrom15-25PrimeofPrimeBrokerage’stradingForex.
• BusinessModel:Modelisbuiltonaggregatingtradesbytraders/smallForex
brokerage’s,to/withthePrimeofPrime’sowndesiredtrades.
• Spread:Lowspreadsonmargins(i.e.0.2–0.7Pip’s).(info:TheseFirmsprovide
accesstobothbankandnon-bankliquidity).
• Regulation:ReputableJurisdiction.
Broker:
• Broker:Firmsthatprovidecurrencytraderswithaccesstoatradingplatformthat
allowsthemtobuyandsellforeigncurrencies.
• Size:Exceeding100+Broker’stradingForex.
• BusinessModel:1)A-Model:Sendtradesfromtheirclientstolargeinstitutionsfor
StraightThroughProcessing(STP).
2)B-Model:Actas“DealingDesk’s”themselves,Tradingdirectly
againsttheirclients(ECN).
• Spread:HighSpreadonmargins(i.e.2–3Pip’s),(Occasionallyhigherindeveloping
countries(i.e.3–4Pip’s)).
• Regulation:Well-regulatedonForexoperations.
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1. Starting a Brokerage
1.1 BusinessModel:
ForexBrokeragebusinessmodelissegmentedintodifferentfactors,thereare:
1. StraightThroughProcessingBroker(STP)
2. ElectronicCommunicationsNetworkBroker(ECN)
TheseForeignExchangeBrokerage’sareusuallyreferredtoasNon-DealingDiskBrokers.
A. StraightThroughProcessing(STP):
• Definition:Straightthroughprocessing(STP):Aprocedurethatfinancialcompaniesusetooptimizethespeedatwhichtheyprocesstransactions.Thisis
performedbyallowinginformationthathasbeenelectronicallyenteredtobe
transferredfromonepartytoanotherinthesettlementprocesswithoutmanually
re-enteringthesamepiecesofinformationrepeatedlyovertheentiresequenceof
events.(i.e.AForexBrokeragesendingclientstransactionsautomaticallyfromits
platformtoitsliquidityprovider:A-Model).
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BusinessModel:
• Spread: Differencebetweenaskandbidprice,CalculatedinPip’s.CustomerBuyscurrencyUSD/GBPwithadifferenceinspreadof1.8Pip’s,
Thespreadisautomaticallylostbytheclientonceheplacesanorderonhis
platform,thissimplyisacalculationofprofitonthebrokerandliquidityprovider
side,towhichthebrokerprofitsfromthe1Pipandthe0.8goestotheliquidity
provider.
• Commission:DevelopingCountries:Abilitytochargeupto4–5Pip’s.
SecondaryCountries:Abilitytocharge1–2Pip’s.
• RevenueStream:Spread,Commission,profitisachievedfromefficiencyof
BrokerageClientTrade’s(CommissionperTrade).
• RiskLevel:Low
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B. ClosedLoopDealingDesk
• Definition:ClosedLoopDealingDesk:AprocedurethataForexBrokerageimplies
towhichaclientbuysandsellsthroughaForexBroker,theForexBroker,atthe
sametime,isacounter-partyofadeal.Ifclientsgetprofit,abrokerbearsaloss,
andviceversa.MostoftheclientsofaForexBrokerhavenoexperienceatthe
Forexexchangemarket,(i.e.AForexBrokeragecounter-partieshisclient’s
transactionsfromthetradingplatformtowhichtheForexBrokerkeepstheclient’s
tradesIn-House:B-Model).
BusinessModel:
• Spread:Differencebetweenaskandbidprice,CalculatedinPip’s.
CustomerBuyscurrencyUSD/GBPwithadifferenceinspreadof1.8Pip’s,
Thespreadisautomaticallylostbytheclientonceheplacesanorderonhis
platform,thissimplyisacalculationofprofitonthebrokerandliquidityprovider
side,towhichthebrokerprofitsfromthe1Pipandthe0.8goestotheliquidity
provider.
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• Commission:DevelopingCountries:Abilitytochargeupto4–5Pip’s.SecondaryCountries:Abilitytocharge1–2Pip’s.
• RevenueStream:Spread,Commission,profitisachievedfromefficiencyofaForex
BrokerageClientTrade’s(CommissionperTrade),aswellasB-Model,Counter-
Partyingclients(ClientLoss=ForexBrokerageProfit).• RiskLevel:High(ClientProfit=ForexBrokerageLoss).
C. Hybrid(STP+ClosedLoop):
• Definition:AproceduretowhichForexBrokerageusesbothA-ModelandB-
Model,wheretheBrokeragesendsaportionofitsclientsusingStraightThrough
Processing(STP)toitsLiquidityproviderswhichisA-Model,andtheB-Model
wheretheBrokerageCounter-Partytheotherportionofitsclientsandprofitsfrom
theirclient’sloss.BusinessModel:
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• Spread:Differencebetweenaskandbidprice,CalculatedinPip’s.
CustomerBuyscurrencyUSD/GBPwithadifferenceinspreadof1.8Pip’s,
Thespreadisautomaticallylostbytheclientonceheplacesanorderonhis
platform,thissimplyisacalculationofprofitonthebrokerandliquidityprovider
side,towhichthebrokerprofitsfromthe1Pipandthe0.8goestotheliquidity
provider.
• Commission:DevelopingCountries:Abilitytochargeupto4–5Pip’s.SecondaryCountries:Abilitytocharge1–2Pip’s.
• RevenueStream:Spread,Commission,profitisachievedfromefficiencyof
BrokerageClientTrade’s(CommissionperTrade),aswellasB-Model,Counter-Part
clients(ClientLoss=ForexBrokerageProfit).• RiskLevel:Medium(ClientProfit=ForexBrokerageLoss/ClientTrades=Spread&
Commission).
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1.2 Technology:
InternalTechnology:
AForexBrokerageNeedstohavethecapabilitytosupportitsbusinessanditsClients
services,throughtechnologyaForexBrokeragehasthecapabilitytoachieveeffectiveness
andefficiency,athoroughresearchwasdonetoprovidetherelevantinformationbelow,
thisinformationwillbeillustratedtofullyawareApexum’sclient’softhebestPractice’s
andProcedure’sneededtoachievetherequiredgoal’saBrokerageneed’s.
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Asseeninthediagramabove,aForexBrokerageneedstohavethecompetenciesin
providingservicestoitsclients,aBrokeragemusthaveatfirstitsowncapabilityinorderto
provideclientswithsuchservices,inconclusionthetechnologydiagramcanbe
categorizedintotwosection,thesewillbeexplainedbelow:
A. Broker:
I. Website:Design:ABrokerNeedstohaveawebsitethatisUserExperiencedand
interfaceddesign(UX/UI),towhichtheFrameworkofthewebsiteisbuildon
customeranticipationandpredictionofclientaction(manydesigner’sare
awareandcapableofdoingsoindesigningawebsite)
PageNumber:AForexBrokeragewebsiteneedstorangefrom10–15Pages,
anexampleisprovidedinthiswebsite:http://yourbrokername.com/.
Content:RelativeandDescriptive.
II. CustomerRelationshipManagement(CRM):
Management:ABrokerageNeedstohaveaCRMinordertomanageclients
whethertheirnewclientsorpotentialones,aCRMgivesthecapabilityof
havinginformationaboutaBrokerageclientsandmanagingthem,thisgivesa
Brokerageanadvantageofbeingefficientandeffectiveincomplyingtotheir
client’sneeds,anexampleisprovidedtogiveaconceptualizingideaofaCRM:
http://www.apexum.com/crm.
III. AffiliateSystem:ABrokerageNeedstohaveanAffiliatenetwork,anAffiliate
Networkisonedigitalchannelusedinmarketing,itisusedbyForex
Brokerage’sasitisoneeffectivemethodinclientacquisition(Highconversion
rate),itgivesacompetitiveadvantageoverotherDigitalChannelsasit
guaranteesaLeadtoaBrokerageinexchangeofcommission.
http://www.apexum.com/affiliate-system
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B. Client:
I. TraderRoom:thecentralhubwhereForexBrokerageclientscanmanagetheiraccountsand
tradingactivitieswiththeirBrokerage.WithintheTraderRoomarea,aForex
Brokeragehastheabilitytoaccessawiderangeoffeaturessuchas
registration,openingnewaccounts,depositsandwithdrawals,uploading
documents,Fundtransferbetweenmultipleaccountsandevencontactinga
clientservicerepresentative.
http://www.apexum.com/trader-area
II. TradingPlatform:Atypeoftradingsoftwareusedtohelpcurrencytraderswithforextrading
analysisandtradeexecution.Currencytradingplatformsprovidechartsand
order-takingmethods,Theseplatformscouldbeleased(Whitelabel,Grey
Label)orboughtbyaforexbrokerage,thereareafewprovidersofthese
platformsastheyarehighlycostlytomaintainanddevelop.
PlatformProviders:
1. Metaquotes:MetaTrader4,MetaTrader52. ACTForex:ACTTrader.
Andmanymore.
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ExternalTechnology:AForexBrokerageneedstohavecertainTechnologyinordertoconnectwiththeForex
MarketandprovidetheServicefeedsfortheBrokerageclients,thesearetheExternal
RequiredTechnologyneededtobeestablishedinordertoprovidetheservicesintended
fortheBrokerageend-clients.
• TradingPlatformServer:ATradingplatformsuchastheMT4(MetaTrader4)consistsofbothaclientand
servercomponent.Theservercomponentisrunbythebrokerandtheclient
softwareisprovidedtothebrokerage’sclient’s,whouseittoseelivestreaming
pricesandcharts,toplaceorders,andtomanagetheiraccounts.
• TradingPlatformBridge:
I. TradingPlatformECNBridge:Atechnologywhichallowsuserstoaccess
interbankforeignexchangemarketthroughtheMetaTrader4(MT4)electronic
tradingplatform.MT4wasdesignedtoallowtradingbetweenabrokerageand
theirclient’s,brokers do not operate the bridge, so a Forex Brokerage client’s get the prices as they are from the liquidity providers.
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II. STP(StraightThroughProcessingBridge):Straight-throughprocessingbridge
softwarehasbeendevelopedovertheyearstoallowtheMT4servertopass
ordersplacedbyclientsdirectlytoanECN(ElectronicCommunicationNetwork
andfeedtradeverificationbackautomatically.
• FixConnector: AllowsattachingMetaTradersystemtoanyFIXcompliantdestination,suchas
brokers,exchanges,ATS.Itsupportsallassetclassesandordertypeswhichare
availableinMetaTrader.GroupsofMT4accountscouldbestructuredinawayto
routeorderstoaspecifieddestination.
• RoutingEngine:HandlescommunicationwithvariousLiquidityProvider’sviaFIXprotocoland
allowstodynamicallychangethehedgingparameters(forexbrokerscanswitch
on/offparticularLP,addmarkupetc.)
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TechnologyStrategyandProcedures:
TradingPlatformStrategy:
Platform:Asaplatform,abrokerageofferstheplatformtotheend-clients,aForexBrokeragemust
placecertainmechanism’sandstrategiesinordertomeetrequiredStandards,these
Procedureshavebeenlistedbelow:
1. Security:
• Authentication:Verifydifferentauthenticationmethodsusedintradingplatform
andtesttheseauthenticationmethods.
• Encryption:Provideencryptionmethodsusedonplatformandtestthemtosee
howviablearethefunctionalities.
• Firewalls:Verifyinstallationsandfunctionsofcustomersfirewallinorderto
complywiththehighestsecuritystandards.
• Authorization:Complywithcustomersidentificationwithprivilegedaccesstothe
platforminordertostatetherightsforeachaccount.
• Administration:Verifythepresenceofwrittensecuritychartsandprovide
appropriatefundamentaltrainingfortheinformationTechnologypersonnel.
• Testing:Testingshouldbeconductedinaccordancewithcustomerssupportteam
wheretheBrokershouldhaveaninternetserviceproviderapprovalinconjunction
withcustomersdatacenterteam:
1. VerificationofFirewall.
2. Authentication,verificationofanysecuritybreach(Ex:Dictionarypassword
attack).
3. Verificationofpasswordrobustness.
4. Verificationsofphysicalsecurityprecautionsforpersonnel.
5. Installationofanetworkanalyzer,networkmonitoranditsusagewhen
necessary.
6. Verificationofphysicalsecuritymanagementandrestrictiontocustomer
datacenterzones.
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2. Capacity:
I. GeneralStandards:ForexBrokerage’smusthandlecustomerordersthrough
adoptingandenforcingwrittenproceduresreasonablydesignedtomaintain
adequatepersonnelandfacilitiesforthetimelyandefficientdeliveryofcustomer
ordersandreportingofexecutions.Furthermore,ForexBrokerageswhooperate
tradingplatformsmustadoptandenforcewrittenproceduresreasonablydesigned
tomaintainadequatepersonnelandfacilitiesforthetimelyandefficientexecution
ofcustomerorders.Theproceduresmustbereasonablydesignedtohandle
customercomplaintsaboutorderdelivery,execution(ifapplicable),andreporting
andtohandlethosecomplaintsinatimelymanner.
II. CapacityReview:ForexBrokerage’sshouldadoptandenforcewrittenprocedures
toregularlyevaluatethecapacityofeachelectronictradingsystemandtoincrease
capacitywhenneeded.Theproceduresshouldalsoprovidethateachsystemwill
besubjectedtoaninitialstresstest.Suchtestmaybeconductedthrough
simulationorotheravailablemeans.Capacityreviewsshouldbeconducted
whenevermajorchangesaremadetothesystemorwhentheBrokerageprojectsa
significantincreaseinvolumewhichshouldoccuratleastannually.
III. DisasterrecoveryandRedundancies:AForexBrokerageshouldhavecontingency
plansreasonablydesignedtoservicecustomersifeitherthesystemgoesdownor
activityexceedsreasonablyexpectedpeakvolumeneeds.TheBrokerageshould
useredundantsystemsorbeabletoquicklyconverttoothersystemsiftheneed
arises.Thesebackupsystemscanincludefacilitiesforacceptingordersby
telephone.
IV. AdvanceDisclosure:AForexBrokerageshoulddisclose,inadvance,thefactors
thatcouldreasonablybeexpectedtomateriallyaffectthesystem'sperformance
(e.g.,periodsofstress)andthemeansavailableforcontactingthecustomerduring
asystemoutageorslow-down.Thisdisclosureshouldbeprovidedtoeach
customeratthetimethecustomeropensanaccountusingamethodreasonably
calculatedtoensurethatthecustomerbecomesawareofit.
V. DifficultyPrecautionary:Whenoperationalobstructionoccurs,AForexBrokerage
shouldprovidepromptandeffectivenotificationtoanycustomersaffectedbythe
operationaldifficulties.Notificationcanbemadebyanumberofmethods,
including:
1. MessageontheBrokeragewebsite.
2. e-mailsorinstantmessages.
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3. Recordedtelephonemessageforcustomersonhold.
4. Recordedtelephonemessageonalinededicatedtoprovidingsystembulletinsto
existingcustomers.
3. CreditandRisk-ManagementControls:
I. GeneralStandards:AForexBrokeragewho handle customer orders must adopt
and enforce written procedures reasonably designed to prevent client’s from entering into trades that create undue financial risks for the Brokerage or the Brokerage's client’s. Regardless of its business model: (dealer or straight through processor), a Forex Brokerage must also have policies and procedures in place to monitor its own proprietary trading, including open positions, and the impact those positions and any potential market movement or adjustments may have on the Brokerage’s ability to meet its capital requirement.
II. AccountControls:Anelectronictradingsystemshouldbedesignedtoallowthe
Brokeragetosetlimitsforeachcustomerbasedontheamountofequityinthe
accountorthecurrency,quantity,andtypeoforder,andtheBrokerageshould
utilizethesecontrols.Thesystemshouldautomaticallyblockanyordersthat
exceedthepre-setlimits.
III. SystemControl:Anelectronictradingsystemshouldalsobedesignedtoidentify
tradinganomaliesorpatternsthatindicateasystemmalfunction,especiallya
malfunctionthatcouldresultinunduerisktotheForexBrokerage.
4. Recordkeeping:I. GeneralStandard:AForexBrokeragewhohandleordersmustadoptandenforce
writtenproceduresreasonablydesignedtorecordandmaintainessential
informationregardingcustomerordersandaccountactivity.
II. ProfitandLossReports:Electronictradingplatformsshouldbeabletoproduce
uponrequestareportshowingmonthlyandyearlyrealizedandunrealizedprofits
andlossesbycustomer.Thereportshouldbesortablebythepersonsoliciting,
introducing,ormanagingtheaccount.
III. DailyTradeRecords:EachForexBrokerageshouldexaminedailyelectronicreport
oftrades,thereportmustcontainthefollowingdata:
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1. Allordertransactionrecordsonadailybasis.
2. Alistofexecutedtradesonadailybasis.
3. Alistofallmoneymanagersonthefirstdayofreporting,withanychangesbeing
reporteddaily.
4. AlistofallpriceadjustmentsmadebytheForexBrokerageonadailybasis.
5. Alistofanyunusualevents,suchasasystemoutageor"fastmarket"onadaily
basisasapplicable.
IV. AssessmentFeeReports:Electronictradingplatforms(Ex:Metatrader4)should
generatemonth-endassessmentfeereportsforaForexBrokerage.Thereport
shouldsummarizethenumberofforextransactionsexecutedduringthemonth
andthesizeofthosetransactions.
6. TradeIntegrity:
I. GeneralStandard:ForexBrokerage’smustadoptandenforcewritten
proceduresreasonablydesignedtoensuretheintegrityoftradesplacedon
theirtradingplatforms.
II. Pricing:Tradingplatformsmustbedesignedtoprovidebidsandoffersthatare
reasonablyrelatedtocurrentmarketpricesandconditions.Forexample,bids
andoffersshouldincreaseaspricesincrease,andspreadsshouldremain
relativelyconstantunlessthemarketisvolatile.Furthermore,ifanForex
Brokerageadvertisesaparticularspread(e.g.,1pip)forcertaincurrencypairs
orprovidesaparticularspreadinitscustomeragreement,thesystemshouldbe
designedtoprovidethatspread.
III. Slippage:Anelectronictradingplatformshouldbedesignedtoensurethatany
slippageisbasedonrealmarketconditions.Forexample,slippageshouldbe
lessfrequentinstablecurrenciesthaninvolatileones,andpricesshouldmove
incustomerssupportasoftenastheymoveagainstit.
IV. Settlement: Anelectronictradingplatformshouldbedesignedtocalculate
uniformsettlementprices.AForexBrokeragemusthavewrittenprocedures
describinghowsettlementpriceswillbesetusingobjectivecriteria.
V. Rollovers: Ifanelectronictradingplatformautomaticallyrollsoveropen
positions,thetradingplatformshouldbedesignedtoensurethattherollover
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complieswiththetermsdisclosedinthecustomeragreement,includingthose
provisionsdictatinghowtherolloverpriceisdetermined.AForexBrokerage
shouldadoptandenforceawrittenpolicydetailingtheproceduresitfollowsto
calculaterolloverorinterestchargesandpayments.Thepolicymustinclude
thefactorsthatareconsideredaswellasthenamesofanysourcesforthese
factors.
7. PeriodicReviews:
I. Review:ForexBrokerage’sshouldconductperiodicreviews(atleastannually,
butmorefrequentlyifthecircumstanceswarrantamorefrequentreview)of
anyelectronictradingsystemitutilizes.Thisreviewshouldbedesignedto:
1. Assessthesecurityoftheelectronictradingsystem.
2. Assessthereliabilityoftheelectronictradingsystem’screditandrisk-management
controls.
3. Ensurethattheelectronictradingsystemmaintainsrequireddataandiscapableof
generatingthereportsrequiredbythisNotice.
4. Ensurethattheelectronicsystemprotectstheintegrityofthetradesplacedonit
andexecutescustomerforexordersinafairmanner.
5. TheBrokeragemustprepareareportoftheperiodicreview,notingthescopeof
thereview,anyfindingsandcorrectiveactionandmaintainacopyofthereviewfor
futurepurposes.Theresultsofthisreviewshouldbereportedtothefirm’ssenior
management,includingtheForexBrokerageChiefComplianceOfficer(CCO),and
anyfollowupshouldberecordedandsignedbyseniormanagement.
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1.3 Finance:
CapitalRequirements:
AForexBrokerageneedstounderstandandprioritieshisfinance’s,aBrokeragemust
securitizetheirtimeframefor1to2monthsinordertooperateandreachtheirBreak-
EvenPoint(BEP),inordertodosoaForexBrokeragemustimplementdifferent
proceduressuchasseparatingtheirfinancialsintooperatingexpensesandtrading
expenses,theseexpensesmustbesubjectedtofinancialprocedure’sandreportingto
highermanagerialpersonalinadailymanner.
Capital:MustbesufficientinordertoestablishaBrokerageFirm.
Assets:Mustbeprovidedtoemployeeuse.
OperationalExpenses:MustberevisedinordertoforecastandmaintainaBrokerage
Stability.
TechnologyLease:Mustberevisedandresearchedinordertomaintainoperational
expenses.
Revenue:MustbeforecastedandstudiedinordertomaintainBrokeragestability.
Profit:Mustberevisedinordertosustainanddevelopcompanybasedonprofit
percentagegoingtoBrokeragedevelopment.
ApexumhasprovidedaFinancialPlanforpublicuseinordertoprovide
eachindividualseekingtoestablishaForexBrokerageanadvantageofelevatingaBrokeragewithahighunderstandabilityoftheirfinancial
procurements:
ApexumFinancialBusinessPlanClickorFollowhttp://businessplan.apexum.com
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1.4 Marketing:AForexBrokerageneedstoestablishabrandpresenceandvalueinorderto
achievestabilityintheForexMarket,ABrokeragemustperformcertainstrategies
forincreasingefficiencyandeffectiveness,aBrokerageneedstobeawareofthe
economicandsocialentitiestowhichgivesacompetitiveedgetothebrokerageof
marketacquisition,belowweshallexplainthemainpointsofmarketingprecisely
neededforForexBrokerage’stoacquireandmaintain:
I. AUDIENCE:
1. Location:Targetlocationofaudiencetobeacquiredasclients.
2. BuyerPersona:CustomerInformationregardingwillingtobecomeaclient
(Audience–Lead–Buyer–Customer)
3. Occupation:(e.g.ProfessionalForexTraderandTechnicalAnalyst)
4. Demographics:(e.g.male,40-55yearsold,British,Englishasafirstlanguage,lives
inLiverpool)
5. Interests:(e.g.ExpertAdvisors,AutoTrading,VPS,Indicators,Football,London
StockExchange,Blogging)
6. Behavior:(e.g.Tradeswithseveralforexbrokers,occasionallydoeshedging,trades
highvolumepositions,readsforexblogs,leavesreviewsonForexPeaceArmy,
participatesindiscussionsonForexFactory,activeonTwitter)
7. Challenges:(e.g.losingtrustinforexbrokerageduetoregulatorwarnings,negative
balanceprotectionsecurityconcerns)
II. ANALYZETARGET:
• ProvideOffersdependinguponmajorcustomerinterests.
• ProvideLearningandadvisorylibraryaswellasconsultation.
• ProvideSecurityinordertoin-lengthCustomerLifetimeValue(LTV).
• ParticipateinForumDiscussions.
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III. CAMPAIGNSTRATEGY(DigitalChannel’s):Thediagrambelowexplainsthemultiplechannel’sneededtobefocusedonbytheForex
BrokerageinordertoAcquirecustomerswithhighConversionRateaswellasin-lengththe
Client’sLifeTimeValue(LTV):
• CONTENT:3-5articlespublishedonwebsiteorpartnersitestargetingwebsitekeywordandlinkingcalltoaction(CTA)tothelandingpageorWebsite.
• SEO&SEM:Compose10-20textadvariationsforsearchenginemarketing(SEM)campaigntotestandoptimizeforbestresults.SEMcampaignsareshowntobeoneofthemostefficientamongalltheotheradsforforexindustry.(Hint:ChooseKeywordsandBidsWisely).
• SOCIALMEDIA:Engagereaders,buildasocialmediafollowing,crosspromotebetweensocialchannelssuchasFacebookandTwitteraccountsandthenmarkettofollowers.
• ADEXCHANGE:Compose3-5variationsofthebannerstorunacrossGoogleDisplay,AdRollretargeting,socialmediachannels,mediabuyingandprogrammaticmediabuying.
• EMAIL:Setupamarketingnewslettertobesenttonon-convertedleads,arrangeexternalblaststhroughpartners,affiliates,introducersandsetupaworkflowforthosecompletingtheformsonlandingpage(s).
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• AFFILIATE:1. Commission:Affiliatessendthemajorityoftraffictothehighestbidder.Create
anaveragepayout(CPA,CPL).
2. Investinconversionoptimization:
Advantage:offeringa$300CPAwitha5%conversionrate.
Disadvantage:$600CPAwitha2%conversionrate.
(HINT:AcquireprofessionalUXdesignersandconstantlytestlandingpage
variations(A/BTesting)tomaximizeconversionrates.)
3. Offersub-affiliate/IBprogram:enableaffiliateprogramtogrowexponentially
(affiliatesattractnewaffiliates).
• SALES:
LeadAttraction:
• Specialoffersanddeals:OfferDoubleleverageduringatimeframetosignupnew
accounts.
• SpecialCommission:OfferCommissionduringatimeframe.
• SmallerSpreads:OfferSmallspreadsduringatimeframeoronagivencurrency.
LeadAcquisition:
• QualityofProduct:BetterSpreads,lowercommission,fasterexecution,bigger
liquidityofForexProducts.
• BroadarrayofProductsAvailable:NumberofSymbolsprovidedtobetraded.
• CapacityandCapabilityofSalesDepartment:Conversionskills,sales-client
bonding,self-suggestion,consultation,conversiondirecting.
• CustomerSupport:MonitorTradeactivities,respondtoquestions,solve
Technologyissues.
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1.5 Licensing&Incorporation:
AForexBrokeragemustacquirelicensinginordertoestablishtransparencyandinsure
credibilitythannon-regulatedBrokerage’sastheseBrokerage’sdonotoperateunder
strictregulations,dependingonthejurisdiction,lawsandregulationsdifferregardingthe
licensingofForexandBinaryOptionsBrokerage’s.Theregulationsthatareinplaythough
aremainlytoensureproperconductbythecompanyandtoensuretheyfollowall
legislationandregulationsetbytheselicenses.ManyForexBrokerage’sdecidetogo
throughthelicensingprocessasitassurestheirclientsofproperconductandinstilstrust
intheironlineactivities.
AdvantagesofLicensing:
Transparency:Theregulatorsinanyjurisdictionkeeprecordsofallformalproceedings
againsttheForexBrokerage.Atradercanfindoutifthefirmhashadseriousproblems
withclientsorregulators.
Safety:Aregulatedforexbrokeragemustkeepitsclients’fundsinsegregatedaccounts
thatarecompletelyseparatefromthecompanycorporatebankaccount.Thisisimportant
forthefollowingmainreasons:
• Itensuresthatcustomerfundsareprotectedandpreventscompaniesfromclosing
theiroffices,movingtheirclients’fundsaway,andabscondingwiththemoney.
• Itmeansthatacompanycannotusethemoneyinonetraderaccounttopay-out
anotherwinningtrader.
HigherCredibility:Regulationandlicensingincreasethecredibilityofthecompanyboth
bytheclients/tradersandtheemployees/staffofthecompany.
DisputeCenter:Unregulatedbrokerscanactasjudgewheneveradisputeisfiledagainst
them,whereregulatedbrokershavetoanswertotheregulatorwheretheirlicensewas
issued.Theregulatorinvestigateseachdisputeorcomplaintagainstthecompanyand
determinewhetherthebrokeractedlawfullyorunlawfullyinthegiveninstance.Their
decisioncanaffecttheForexBrokerage’slicenseholdingandinextremecasesthe
brokeragecanloseitslicense,cangethugefinesandcanlimitthebrokeragetooperate.
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EstablishedForexCenter’s:
I. First-LevelJurisdiction:
USA(CFTC,NFA):
• TimeFrame:1-2Years.
• FreeCapital:$20Million(Clientdeposit’snotincluded).
• ReportingRequirements:Difficult.
• ServiceProvidedRequirements:HighQuality.
• MembershipFee’s:Startingat$125,000perAnnually(Compulsory).
• Website:https://www.nfa.futures.org/
Japan(FSAJapan):
• TimeFrame:1-2Years.
• FreeCapital:$20Million(Clientdeposit’snotincluded).
• ReportingRequirements:Difficult.
• ServiceProvidedRequirements:HighQuality.
• MembershipFee’s:Startingat$125,000perAnnually(Compulsory).
• Website:http://www.fsa.go.jp/en/
II. Second-LevelJurisdiction:
GreatBritain(FCA):
• TimeFrame:1Year.
• FreeCapital:$100,000(Clientdeposit’snotincluded).
• ReportingRequirements:Standard.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$35,000-$50,000one-timeFee(Compulsory).
• Website:https://www.fca.org.uk/
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Australia(ASIC):
• TimeFrame:1Year.
• FreeCapital:$100,000(Clientdeposit’snotincluded).
• ReportingRequirements:Standard.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$35,000-$50,000one-timeFee(Compulsory).
• Website:http://asic.gov.au/
III. Third-LevelJurisdiction:(Hint:importantfeatureoflegalregistrationofthecompanyinthesecountriesisdealing
withtheEuropeanclientsandasimplifiedprocessofopeningacorporatebankaccount.)
Cyprus(CySec):
• Assets:OfficeRequired
• TimeFrame:6Month’s.
• FreeCapital:Startingat$30,000.
• ReportingRequirements:Simplified.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$35,000-$50,000one-timeFeeforLegal
Services(Compulsory).
• Website:http://www.cysec.gov.cy/en-GB/home/
Malta(MFSA):
• Assets:OfficeRequired
• TimeFrame:6Month’s.
• FreeCapital:Startingat$30,000.
• ReportingRequirements:Simplified.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$35,000-$50,000one-timeFeeforLegal
Services(Compulsory).
• Website:http://www.mfsa.com.mt/
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NewZealand(FSP):
• Assets:OfficeRequired
• TimeFrame:6Month’s.
• FreeCapital:Startingat$30,000.
• ReportingRequirements:Simplified.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$35,000-$50,000one-timeFeeforLegal
Services(Compulsory).
• Website:https://www.companiesoffice.govt.nz/fsp/
IV. Fourth-LevelJurisdiction:
OFFSHORE:
BritishVirginIslands(FSC):
• Assets:PhysicalorVirtualOfficeRequired.
• TimeFrame:3-4Month’s.
• FreeCapital:Rangingfrom$20,000-$30,000.
• ReportingRequirements:Simplified.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$20,000-$30,000one-timeFee(Compulsory).
• Website:http://www.bvifsc.vg/
Belize(IFSC):
• Assets:PhysicalorVirtualOfficeRequired.
• TimeFrame:3-4Month’s.
• FreeCapital:Startingat$30,000.
• ReportingRequirements:Simplified.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$20,000-$30,000one-time(Compulsory).
• Website:http://www.ifsc.gov.bz/
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V. Fifth-LevelJurisdiction:
(Hint:Forexlicenseisnotcompulsory)
Seychelles(CBS):
• Assets:PhysicalorVirtualOfficeRequired.
• TimeFrame:2-3Month’s.
• FreeCapital:Startingat$30,000.
• ReportingRequirements:Simplified.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$20,000-$30,000one-time(Compulsory).
• Website:http://www.cbs.sc/index.jsp
StVincent(FSA):
• Assets:PhysicalorVirtualOfficeRequired.
• TimeFrame:2-3Month’s.
• FreeCapital:Startingat$30,000.
• ReportingRequirements:Simplified.
• ServiceProvidedRequirements:StandardQuality.
• MembershipFee’s:Rangingfrom$20,000-$30,000one-time(Compulsory).
• Website:http://svgfsa.com/warn.html
Summery:Essentially,regulationmeansthatthereisanindependentbodybetweenthe
traderandtheForexBrokeragethatislookingoutforthebrokerage’sinterests,making
surethateverythingisalwaysaboveboardandthatFairtreatmentisexercised.
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2. Company Procedure’s (Company Structure)
ThissectionwillprovideindividualsseekingaForexBrokeragethoroughinformation
regardingrolesofformalization,centralization,levelsintheflatandhierarchystructures,
anddepartmentalizationinemployeeattitudesandbehaviors,aswellasDescribehowthe
elementsoforganizationalstructurecanbecentralizedtoreacheffectivenessand
efficiency,Furthermore,itwillprovideanUnderstandingofstructuresfororganizations.
Diagram:Eachdepartmentshowninthediagramisacompanyassetandcapability,these
departmentsarecompliedtoCEOdecisions,thesedepartmentsarestakeholderstoeach
other,themodelabovedemonstratesanorganizationalflatstructure,theflatstructure
hasbeenfavouredtospecificpointsleadinganorganizationtobettercoordination,
efficiency,centralizationandeffectivenessinaForexBrokeragedaytodayprocedures.
Furthermore,aForexBrokerageassemblingaflatstructurewillhaveacompetitive
advantageofexpandingeachdepartmentintomulti-levelswithoutanyfuture
complicationssuchasdecentralization,theStructureaboveisdisplayedtofurtherdevelop
awarenesstoanyintendingindividualseekingaForexBrokerage.
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Department Responsibilities: 2.1 CEO:ResponsiblefordrivingoverallgrowthoftheForexBrokerage.TheCEOrelieson
Stakeholders(Marketing,Sales,Support,Finance,Compliance)intoachieveadecision
withleastimpactthatmightconflicttheBrokerage,aCEOcircleofmanagersand
departmentheadstofocusonspecificpartsofthecompany.
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2.2 IT(Technology)Responsiblefortheoverallmaintenanceofthefirm’sservers,network,telephonesand
individualPCs.Additionally,theITdepartmentmustbackupallsensitivedataaswellas
haveanemergencyplaninplaceforunforeseenoutages.Thisfinalpointiscrucialfora
ForexBrokeragesincestabilityinonline-tradingisamust.
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2.3 Marketing Thecontentofthewebsite,advertisements,promotions,emailsnewsletters,SEO(Search
EngineOptimization),SocialMediaPresence,planningseminars/expos,anddatagathering
areallresponsibilitiesofthemarketingdepartment.Aneffectivemarketingdepartment
willadapttonewmediumsofpromotion,andtrendchangesregardingthemarketing
industry.
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2.4 Sales Responsibilitytoattractandconvertnewclients,butalsomaintainingrelationshipswith
existingcustomerstoensureasatisfactoryexperience,alargeportionofabroker’s
revenueisgeneratedfromtraderswhoarepleasedwiththeirbroker.Business
developmentaswellasIB(IntroducingBroker)relationshipsalsoplacedunderthis
category.Duetotheworld-wideappealofForexMarket,thesalesdepartmentshould
havetripleshiftofstaff(8hourspershiftoraccordingtotheagreementbetweenthe
employerandemployee(aroundtheclockshifts)).
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2.5 Support Responsibilityofthisdepartmentistoprovidereal-timesupporttocustomers.This
includesansweringinquiresaswellasperformingspecificaccountrelatedrequestsuchas
deposits,withdrawals,andclosingaccounts.Tostaycompetitive,asupportstaffshould
alsohavetripleshiftofstaff(8hourspershiftoraccordingtotheagreementbetweenthe
employerandemployee(aroundtheclockshifts)).
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2.6 Finance
Naturallyallmonetarydecisionsfallundertheumbrellaofthefinancedepartment.The
executionmodeloftheForexBrokerage,forexample,anSTPsetup,willmakeiteasieror
moredifficulttopredictrevenue.Manydepartmentswillworkcloselywiththefinance
departmentsoitisimportantthatthestaffiswellversedinallfacetsofthebusiness.
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2.7 Compliance AlllegalaspectsofaForexBrokeragearehandledbythecompliancedepartment.This
includesaccounting,settlingdisputessuchastradeauditsaswellaslawsuits.Sincelarge
amountsofmoneyaretransactedbyaForexbrokerage,itisessentialtohavea
compliancedepartment.
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2.8 HumanResourceThehumanresourcesdepartmenthasthesameresponsibilitiesasanyotherdepartment
inanybusiness.TheyareresponsibleforfindingqualifiedcandidatesforaForexBrokerage
andshouldworkcloselywithalldepartmentheadsinjobdescriptioncreationtoensure
thatitclearlyrepresentsthedesiredskillsforaForexBrokerageteammemberthatmay
beoutsideofthehumanresourcedepartment'sareaofexpertise.HumanResource(HR)is
alsoresponsibleforcreatinganemployeehandbookandmanaginginternalpersonnel
issuessuchasvacations,conflicts,etc.Officemanagementshouldberesponsiblefor
suppliesandinfrastructurevendorsandfallunderthepreviewofHumanResources.
CONCLUSION:Asseenabove,eachdepartmentwascategorizedandstructureddependinguponthe
forexmarketneeds,aForexBrokeragedealswithamarketthatis24/5towhicheach
departmenthasbeenplacedwithcarefulconsiderationandthoroughanalysisbasedon
experience,theI.T(technologydepartmenthasnotbeenincludedasthisstructure
assumesthetechnologyusedisoutsourcesanddependedonsecondpartyprovidersasit
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isatimeconsumingandcostlyinvestmenttodevelopin-housetechnologythatsuite’sa
brokerageneeds.
3. Implementation & Timeline
Below are details displayed to aware on steps and processes to be followed in order to plan and execute effectively the requirements on establishing a Forex Brokerage:
3.1 PlanningandDocumentation
1. BusinessPlanCreation.2. CompanyProcedure,PoliciesandStrategy.3. CreateandsignPartnershipAgreement.4. ChooseCompanyname.
4.2 EntityCreation
5. CompanyIncorporationandregistration.6. OpenBankAccountandFundit.
4.3 OfficeInfrastructure
7. SelectOfficeLocation(PhysicalorVirtual)8. SetupPhoneNumber.
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4.4 TechnologySetup9. OfficeNetwork(Server,Workstations,Printers)10. Internet,Telephonesystem,Fax.11. SelectingandRegisteringDomain.12. Website,Emails,Hubs,CRM.13. OnlinePaymentIntegration
4.5 OperationalInfrastructure
14. TradingPlatformSetup15. TestingPlatformSetup16. Liquidity&CoverageAgreements.
4.6 StaffRecruiting
17. HiringEmployees18. TrainingEmployees
4.7 RevenueGeneration
19. MarketingPlan20. MarketingTarget21. CustomerAcquisition
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Appendix - Definitions
For the purposes of this document, and for an understanding of general industry terms, we have put together a list of terminology definitions:
1. Brokerage=legalentityallowedtoopencustomeraccountsandcollect
customermoney.�
2. Broker=anemployeeofthebrokeragethatisworkingwithacustomer.�
3. Introducingbroker=independentcompanythatisbringingcustomertothe
brokerin-�exchangeofremuneration.(usually1PIP).�
4. PrimeBroker=anentitythatiswillingtorepresentthebrokerageinallits
trading�transactionsandsettlethetradesinyourname.Usuallyrequiresa
securitydeposit.Couldbeautomaticormanual.Examples:Barclays,FC
Stone,JPMorgan,etc.�
5. ECN=electronictradingsystemwhichpairsofferanddemandwithouta
middleman(inthisCaseForex).
6. Forex=foreigncurrencyexchange.�7. Customerorclientorenduser=aprivateorcommercialentitythatopens
anaccount�withthebrokerage.�
8. Wire=electronicmoneytransfer.�
9. Self-traders=customersthatdirectthetradingoftheirownmoney.�
10. Managedaccounts=customersthatopenanaccount,depositmoneybut
whogive�powerofattorneyto3rdpartytoinitiatetradesintheiraccount.
�
11. Dealer=ahumanorcomputersoftwarethatwillmonitortherisktakenby
thebrokerage.�
12. Tradingplatform=acomputersoftwarethatgivesaccessviatheinternetto
humansor�othercomputerprogramstotheinformationtheyneedto
monitortradinginformation.�
13. Trades=(Forexcontext)theactionofbuyingorsellingonecurrencyinexchangeofforanother.�
14. P&L=profitandloss.15. Depositcurrency=currencyofthemoneydepositedinhisaccountheldat
thebrokeragebytheclient.
16. Margintrading=allowingthecustomertoborrowmoneyautomatically
whenheisplacingatrade.
17. Margincurrency=currencyusedforthemargin.�
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18. Pair=(Forexcontext)asymbolonecantrade.�
19. Frontend=thepartofthetradingplatformthatseenbythebrokerage
client.�
20. Backend=partofthetradingplatformonlyseenbythebrokerage
employees.�
21. Rates=exchangerates.�22. Counterparty=entitythatwilltakesomebody’saccount,moneyandwill
allowthe�accountopenedtotradeagainstthedeposit.�
23. RatesandQuotes=(forForexpurposes)exchangerates.
24. SymbolsandInstruments=thedifferentexchangeratesacounterpartyis
monitoring�andcouldoffertoitscustomerfortrading.�
25. Marketing=theactionofattractinginterestfrompeopleandcollectingtheir
contact�informationforcommercialpurposes.�
26. Product=(Forexcontext)atypeofservicethebrokercanoffer.�27. Sales=theactionofsellingaproducttoacustomer.�
28. Basecurrency=inapairlikeEURUSDthe1stcurrency(inthiscaseEuro).�29. Lot=(Currencycontext)usually100000or10000ofthebasecurrency.�30. OpenP&L=thepotentialP&Lofatradeifthetradewastobeclosed
IMMEDIATELYbutwhichisstillopen.�
31. Balance=totalamountintheclientaccountNOTincludingtheopenP&L.
32. Equity=totalamountofaclienthasIFthetradeswereclosedIMMEDIATELY.
�
33. Pip=thesmallestamountacurrencywillmoveby.Either0.0001or0.01ifa
pairinvolvesJapaneseYen.�
34. Margincall=whenacustomerequityisnotenoughtocoverthemarginhe
usedto�borrowmoneytotrade.typically,allBrokeragesclosethecustomer
positionautomatically.�
35. Bid=priceatwhichonecanSELL.36. Ask=priceatwhichonecanBUY.�37. Spread=differencebetweenbidandask(spread=ASK-BID),calculatedin
pips.