Brokerage companies on the Foreign exchange interact with all market participants and provide intermediary services to traders. To carry out activities, brokers need a license that guarantees the honesty and legality of the company. Without the participation of a brokerage company, a private user will not be able to trade on the Forex market, since an individual is not a financial institution or a government investment fund. Brokers provide an opportunity to conclude transactions for real money, without an offer agreement with an intermediary, a trader can work on a free demo account. The functions of brokers are reduced to providing the following services:
  • Providing the opportunity to trade on the international Forex market with various financial instruments - stocks, currency, raw materials, futures.
  • Maintaining financial documentation of traders, which relates to the client's trading activities, as well as providing information on the situation in the Forex market.
  • Performing the functions of the guarantor and the client's attorney, certification of the facts of the conclusion of transactions at the legitimate, legislative level.
  • Providing leverage (financial leverage) for traders to participate in large lots. The leverage is determined by the broker.
  • Creation of comfortable trading conditions with acceptable commission costs, optimal spread, high-quality trading platform.

The Need for a Brokerage License
Also, the question arises: "Are Forex brokers regulated?" Obtaining a license is not 100% mandatory. There are unlicensed platforms that also provide services to traders. But they have a number of restrictions (they cannot work in some countries, they do not cooperate with reliable liquidity providers, etc.). And most importantly, traders who decide to start a Forex business are not protected by law. They do not receive any guarantees and their money is not protected from scammers. If traders cooperate with such companies, they act on their own responsibility and cannot count on getting help in resolving conflict situations. Brokerage companies that operate without proper permits have a lot of room for fraudulent activities. Why do brokers need a license when working on the Forex market:

  • Obtaining a permit requires the broker to have a cash capital of at least a specified amount.
  • Licenses are issued by the financial market regulator on the basis of a package of documents provided by the broker.
  • When issuing permits, the qualifications of the broker and the appropriate financial and economic training of employees are considered.
  • The credibility of the Forex broker license depends on the jurisdiction of the regulator that issued the authorization.
  • The period of validity of the license and the conditions for obtaining it are determined by the controlling body regulator.

Reliable Regulators of Financial Markets

Why brokers need a license, every investor in the Forex market understands. The choice of a mediator should be deliberate and responsible. It is not only the availability of a license that matters but also, it's quality. Most companies obtain permits from offshore regulators due to more attractive tax conditions, some brokers are registered through regulators with jurisdiction in mid-shore and onshore. Attention - to the reputation of the regulator. The most reliable control services that issue licenses to brokers:

  • There is an FSA in the UK - a high degree of trust, more than thirty years of work.
  • The Australian ASIC regulator has been operating since 1998 and is engaged in a variety of activities, including resolving financial disputes.
  • The supervisory authority of financial markets in Germany BaFIN - good reputation, extensive experience.
  • Cypriot regulator CySEC has issued licenses to many brokers popular in the Forex market, a high level of trust.
  • The company Forex broker regulation limiting FINRA (USA) has been operating on the market since 1939, an extensive list of licensed brokers.

Broker License Obtaining Process

There are many reasons to get a license to operate in Forex. Such a platform looks more attractive in the eyes of a potential client. Therefore, novice brokers must obtain the required documents even before starting a cryptocurrency exchange. This process consists of several stages.

1. You need to analyze the market and define a portrait of a potential client. For example, a US license is optional if the broker plans to provide services in the European Union. Study the Forex license requirements for each region and choose the best option.

2. Register a company in the selected country and open an office. The presence of a physical office is a prerequisite for creating a crypto exchange and obtaining a license. Some countries require the country's citizens to be on the board of directors.

3. Start cooperation with a reliable bank and open an account. The presence of fiat funds in the accounts of a reliable bank is a guarantee of the safety of financial transactions and the financial solvency of the broker. Quality companies partner with trusted financial institutions with an excellent reputation.

4. Compliance with KYC/AML policy. Every broker who wants to start a cryptocurrency exchange and get a license must follow the AML (anti-money-laundering) policy. It is necessary to hire a qualified specialist to help meet this criterion.

5. Verification of documentation. Also, a broker must provide a business plan to the financial regulator in order to obtain a license. A clear strategic development plan and the availability of financial statements will confirm that the company is not a one-day company, but really strives to work efficiently and provide services to traders.

6. Application. The final stage for obtaining a license Forex broker. Remember that documents must be systematized, verified by lawyers, and filed in accordance with the requirements of local legislation. Now the regulator analyzes the information and makes a decision. The process of obtaining a Forex broker license can take from 2 months to 2 years.

Best Forex Regulators for Licensing and Brokerage

Each region has its own requirements and limits. There are countries with weak, medium, or severe regulation. The broker must carefully analyze the offered conditions and choose the best option for the company. In this review, we will tell you about the best jurisdictions and Forex broker regulations.

Cyprus

The Cyprus government has recently compiled an extensive list of CySEC guidelines, which are constantly updated and revised to provide full control over forex brokers. The key advantage of opening a Cyprus brokerage company will be the ability to sell and receive customer deposits, as well as the establishment of a real economic presence in any of the EU countries.

Those who plan to order a forex license in Cyprus must comply with these requirements of the financial regulator (CySEC):
  • Availability of a local office;
  • At least 3 resident directors with experience in finance;
  • Availability of minimum working capital: from 750,000 EUR;
  • Submission of financial reports to CySEC;
  • Maintaining customer positions amid market volatility;
  •  Ensuring the protection of traders, in accordance with the policies of the Investor Compensation Fund (ICF);
  • Keeping traders' funds in segregated bank accounts with a tier 1 bank under the Banking Committee on Banking Supervision (Basel Accords);
  • Strict adherence to the rules and regulations under the Markets in Financial Instruments Directive.

It will take entrepreneurs up to 6 months to get a forex license in Cyprus.

Australia

Those who intend to open a forex company in Australia in order to provide advisory services on financial products, work with financial products and registered schemes, or create a market for financial products in the jurisdiction, will need to obtain an Australian Financial Securities (AFS) brokerage license.

The main conditions of the local regulator are as follows:

  • Presence of a representative office in Australia;
  • From 2 or more directors with resident status and the presence of a secretary;
  • Minimum working capital of the company: 1,000,000 AUD;
  • Licensed to provide services to Australian citizens;
  • Business management from the territory of the jurisdiction;
  • Transparency and provision of audit reports.
Among the key advantages of buying a forex license in Australia compared to purchasing a license in the United States and the European Union, the following are worth noting:
  • No prohibition on hedging;
  • FIFI rules do not apply;
  • Absence of significant restrictions on investments from other sources.
Registration of a forex company in Australia and licensing takes, on average, up to 6 months.
United Kingdom

Those wishing to register a forex firm in the UK need to be prepared for the high requirements of the local regulator (UK FCA).

  • Presence of a registered office;
  • From 1 and more highly qualified directors with extensive experience in the financial sector (in the foreign exchange market);
  • Mandatory residence of the director in the UK and management of the company from the territory of the United Kingdom;
  • First-class trained staff;
  • Availability of a compliance officer (resident).
By contacting the UK financial regulator, you can:

  • Obtain a dealer license (working capital: 730,000 EUR);
  • Obtain a limited brokerage license (working capital: 50,000 EUR);
  • Order an intermediary license (working capital: 125,000 EUR).
Registration of a company under Forex in the UK will allow brokers to provide a wide range of financial services, including:
  • Work with investments;
  • Web investment transactions;
  • Administration and storage of assets;
  • Investment management and investment consulting;
  • Organization of investment transactions;
  • Help in finding buyers;
  • Coordination of negotiations and consulting on the structuring of the transaction;
  • Providing general management of transactions.
The terms for obtaining licenses in the UK are 4-6 months.

Japan

Registration of a forex firm in Japan will take a lot of time, however, it will give you the opportunity to do business in the largest Asian markets, easily find clients, and gain the trust of potential partners. Ordering a forex license in Japan will require compliance with these conditions of the regulator (JFSA):
  • From 1 or more directors (residents) with a deep understanding of the financial sector;
  • Registered local office;
  • Highly qualified personnel;
  • Ability to provide services to Japanese citizens, subject to resident status;
  • Fixed spread: 0.1-0.3 percentage points;
  • Ban on offering negative balance protection (NBP);
  • The maximum investment ratio for private traders is limited to 1:25;
  • The maximum investment ratio for corporate traders is limited to 1:100.
Also, those who intend to open a Forex company in Japan should pay attention to the fact that the local regulator prohibits the implementation of EA trading strategies, as well as hedging, speculation, or arbitrage.

USA

Today, the United States is the most promising jurisdiction for entrepreneurs wishing to apply for a forex license. Forex prime brokers trying to get such type of a license. The key requirements of the United States financial regulator are as follows:

  • Physical local office;
  • From 1 or more directors;
  • Minimum working capital: USD 20,000,000;
  • Passing the National Commodity Futures Exam (NCFE or Series 3 exam) administered by FINRA on behalf of the NFA;
  • Registration with the CFTC under the Commodity Exchange Act (CEA) as a Retail Foreign Exchange Dealer (RFED);
  • Joining the NFA.
We would like to draw the attention of those who are going to apply for a forex license in the USA for the Forex trading rules developed by the CFTC in order to minimize the risks for traders:
  • Limiting the maximum capital investment ratio to 1:50 (previously 1:3000);
  • Implementation of FIFO and OCO rules;
  • Prohibition of hedging for the same currency pair;
  • Serving US citizens can only be provided by US brokers.
It will take 1-2 years to register a Forex company in the USA and order an American brokerage license.

Quality Solution for Obtaining a License

The process of obtaining a license and starting a crypto exchange on Forex can be a serious procedure that will make the process of creating a business long. There is a more efficient and quality way that will also help to minimize costs. We're talking about a White-Label solution. Liquidity provider B2Broker will help you to get a Forex license and provide an excellent set of trading tools. Moreover, the company cooperates with tier1 market makers, so that users' orders will be executed as quickly as possible. And around-the-clock support will help you quickly solve any problems. Together with B2Broker, you can quickly obtain a license and create the Forex platform of your dreams.