If you've ever traveled outside the country, you know exchange rates can kill you, but only if the foreign currency is worth more than your home country's currency. For example, if $1 will only buy £0.70, then you're effectively "trading down," assuming costs for goods and services are relatively equal in both countries.
But, you can take advantage of these same exchange rates, and make a profit, if you own a currency trading business. Foreign exchange trading involves buying and selling foreign currency to make money off an international foreign exchange market. Since the value of the world's currencies are constantly changing, the purpose of the business is to time the buying and selling of currencies, trading one against another, so that the company profits from currency swings with minimal losses (called "drawdown").
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Learn how to start your own Currency Trading Business and whether it is the right fit for you.
Start a currency trading business by following these 10 steps:
- Plan your Currency Trading Business
- Form your Currency Trading Business into a Legal Entity
- Register your Currency Trading Business for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Currency Trading Business
- Get the Necessary Permits & Licenses for your Currency Trading Business
- Get Currency Trading Business Insurance
- Define your Currency Trading Business Brand
- Create your Currency Trading Business Website
- Set up your Business Phone System
There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your currency trading business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Exploring your options? Check out other small business ideas.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a currency trading business?
The costs for starting a currency trading business are minimal. All you need is a computer and access to a FOREX trading platform. Expect to pay between $500 and $2,500 for a computer. Higher end computers are sometimes necessary if you plan on doing high volume trading. In this case, your computer costs could exceed $5,000-$10,000.
What are the ongoing expenses for a currency trading business?
Ongoing expenses for a currency trading business include a fast internet connection and computer maintenance, including regular software upgrades. Even with these costs, you should pay no more than $1,000 per year. If you are a broker, your costs may exceed several thousand dollars per month in server costs, software maintenance and upgrades, and servicing traders who use your platform.
Who is the target market?
If you are running a currency trading business for yourself, you have no customers. If you grow into a broker or market-maker, your customers are other traders and sometimes other brokers.
How does a currency trading business make money?
Currency trading businesses make money from the rise in currencies they invest in. Specifically, traders hope that the price of the currency they just bought will rise relative to the one they just sold. If you are a broker, you charge other traders a fixed or variable spread commission for trading. Some companies act as "pass through" entities for large market-makers, and only charge a fraction of a pip commission so that their traders can pay a thin spread that is only usually offered to very large or institutional investors.
How much can you charge customers?
If you are brokering for other traders, you can charge between 0 and 4 pips per trade. Since this is a very competitive industry, if you charge higher than the average for brokers, make sure you offer value-added services for traders.
How much profit can a currency trading business make?
If you are trading currencies, your revenues can fluctuate depending on market conditions, but generally a trader will earn between $50,000 and $150,000 per year, gross. This means a company employing 5 traders can expect to gross up to $750,000 per year. However, very successful traders can earn much more.
A broker or market maker may earn between $500,000 and $10 million or more per year.
How can you make your business more profitable?
Create a platform that other traders want to use. This market is driven by low trading costs and fast execution service. These are the two areas you should spend most of your time improving. This business also has a reputation among some traders for shady broker practices. Being transparent with your customers and explaining your trading practices, avoiding slippage in your buy and sell orders, and not using markup to boost profits, are all things that will keep your customers coming back to you and thus increase long-term profits for your company.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Currency Trading Business Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your currency trading business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
- LLC Taxes
- Sole Proprietorship vs LLC
- LLC vs Corporation
- LLC vs S Corp
- How to Start an S Corp
- S Corp vs C Corp
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
Besides being a requirement when applying for business loans, opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
Open net 30 accounts
Net 30 accounts are used to establish and build business credit as well as increase business cash flow. With a net 30 account, businesses buy goods and repay the full balance within a 30-day term.
NetMany net 30 credit vendors report to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our best net 30 vendors, guide and start building business credit.
Get a business credit card
Getting a business credit card helps you:
- Separate personal and business expenses by putting your business' expenses all in one place.
- Build your company's credit history, which can be useful to raise money later on.
Recommended: Apply for an easy approval business credit card from Divvy and build your business credit quickly.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a forex trading business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
FOREX trading businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership.
Informed Consent Agreement
It is recommended to provide clients with informed consent agreements to decrease legal liability and encourage transparency.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market a currency trading business
If you are promoting your services to other brokers, the best way to advertise is through FOREX forums, newsletters, and alternative investing websites and newsletters. You can also buy pay-per-click advertisements and run solo ads. The important thing to remember is FOREX and currency trading is an alternative investment for many people. So, advertise in places where your target market is likely to be hanging out.
How to keep customers coming back
Attracting and keeping customers is simple. This is a very competitive industry, so keep your spreads lower than your competition. Constantly check market rate spreads as they change periodically.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2022 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
Start a Currency Trading Business in your State
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
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Is this Business Right For You?
This business is ideal for individuals who love high-risk businesses. You must be willing to work long hours, be good with numbers, and be willing to learn about and understand various trading algorithms. You should also be passionate about world economies.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a currency trading business?
A currency trading business starts early. Traders start trading currencies as soon as a market opens. The FOREX market technically does not close, since it is global. However, markets in one part of the world do close. It's just that, when they do, another market opens for business. So, currency trading companies can theoretically work 24/7.
The day starts with a basic analysis of the markets, which includes current news stories, trends in the market, and an analysis of the company's own capital and trading positions. Any open positions are checked and any closed positions are accounted for.
The company's trading managers and representatives set their initial buy-in prices and stop-losses. They also check and monitor their margin or leverage. Leverage is often used in currency trading because currency price fluctuations are generally small. Leverage of 50:1 or 100:1 is not uncommon. This means a trader can control or trade $100 for every $1 of the company's own capital.
What are some skills and experiences that will help you build a successful currency trading business?
You will need at least amateur-level knowledge of the currency markets. Working under a successful currency trader helps, but is not mandatory. There are no laws governing who can and cannot trade in the FOREX markets for business purposes. You will need proper licensing, however, if you want to become a broker or market-maker. You will also need cash reserves and a bond to guaranty your customers' funds.
What is the growth potential for a currency trading business?
Growth potential is unlimited. A currency trading company can be as small as one person or it can grow into a broker or market-maker, offering trading services to other people.
Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a currency trading business?
Start with small lot sizes and keep sufficient cash reserves. Most traders only trade with 5%-10% of their total tradeable capital. They employ leverage to make significant gains.
How and when to build a team
Build a team only if you want to become a broker or market-maker in the industry. You will need a small team of professionals who are also skilled in currency trading, customer service, and web design. You should build out your team when you have enough money to do so. Most currency trading companies start small, as professional traders. Consider doing the same.