Financial markets have been expanding with more assets in question and an increasing number of investors and brokers. This huge demand is attributed to lower entry barriers and the digitalisation of platforms.
However, among all these changes, the currency market remains prominent as the largest financial market with one of the biggest liquidity ever and the most significant investors, such as banks, multi-million dollar corporations and more.
Therefore, if you are planning on launching your brokerage platform, getting a Forex trading license is crucial to capitalise on the huge market opportunities. Let’s discuss how to get a Forex broker business permit.
Becoming a Licensed Forex Broker
Due to the massive expansion of Forex trading, a huge number of brokers and trading service providers emerged, operating from different locations in the world.
However, this ease of access opened the door for illegal activities to take place, taking advantage of investors’ willingness to invest in the currency market and failing to deliver the promised services.
Therefore, countries and regulators started enforcing a Forex license as an indicator for a legitimate market participant who is legally bound to deliver the promised services. Otherwise, they will punished accordingly.
licensed Forex brokers are obliged to follow the guidelines provided by the regulatory framework of the financial authority in a particular location. For example, an FX broker licensed in the UK is subject to the regulation of the (FCA) Financial Conduct Authority.
Why Get a Forex Brokerage License?
Regulated FX brokers are more likely to attract more investors and traders to their platform, especially since participants are more aware of cybersecurity risks and the importance of dealing with a legal entity.
Therefore, you can use it to your advantage to expand your user base and grow your business. Additionally, brokerage platforms are connected to various liquidity providers, payment systems, trading software, and CRM interfaces that only work with legally permitted entities.
Thus, obtaining an FX trading license allows you to improve your offerings and make your platform more appealing and customised to investors’ needs.
Types of Forex Trading Permits
There are different types of licenses according to the jurisdiction that prevails in a specific country. These frameworks differ in their description of the rights and duties and the insurance coverage they provide to involved parties.
Category A
The most high-profile license is given to financial institutions subject to a strict regulatory environment and hefty punishments. Brokers in this category prevail in the United States and Switzerland, where the Forex trading landscape is heavily regulated and supervised.
Category B
Working under this framework can be considered more accessible than Category A. However, there are strict guidelines that must be followed, such as providing a working capital of up to $1 million, with thorough requirements for reporting and declarations. This category prevails more in the UK and Australia.
Category C
This category involves jurisdictions where requirements are less demanding, and the emphasis is on the enforcement mechanism that combats money laundering and scam schemes. These can be found in Europe (CySEC) and Asia, such as Malaysia, Indonesia, and Dubai.
Category D
These frameworks are more appealing for offshore forex brokers and operators who are looking to get a license with the bare minimum of requirements and regulations.
The Process of Getting a Forex Trading License
The first thing you need to know about applying for a FX trading license is that it might take some time before you receive your permit, which can extend from 4 weeks to 4 months. Therefore, you must prepare ahead of time for the following procedures.
- Choose the jurisdiction you want to apply for: This depends on your geolocation, target market and the budget you are willing to set for the shared capital and relocation if necessary.
- Set up a business plan: Most regulations require thorough planning and strategising for the coming two years, with an expected approach for getting liquidity, investments and growth.
- Prepare the required paperwork: Jurisdictions ask for a large chunk of documentation regarding the business owner(s), board members and operators. These include criminal backgrounds, bank statements, proof of experience and more.
- Create a compliance team: Most regulations require ongoing reporting, updating, and compliance with changing regulations. Therefore, prepare a legal team to observe and ensure complete compliance.
Final Thoughts
Getting a license to offer Forex trading services is a challenging process, especially amidst the changing environment and updated protocols to combat money laundering and illicit activities.
However, once you get an FX brokerage permit, you are more likely to land more clients, increase your network of providers and tap-on long-term growth opportunities.
