You’ve probably heard that over recent years, binary options brokerages have been booming, as more and more customers want to speculate on Forex, commodities and stocks by using binary options instead of spot market prices. What you might not know is that it is possible to make a go of this potentially very profitable business for less than $50,000 of initial investment, a sum that is far from impossible to raise for many.
In this article we will look at the steps necessary to get such a binary options brokerage business off the ground.
Raising the Money
Quite frankly, the more money you can raise, and the fewer investors that provide the funds, the better and easier things are going to be going forward. Usually, the fewer people that need to be brought onboard for major decisions, the better.
If we begin with the sum of $50,000 this is not the kind of money you are going to get from a bank loan, or institutional investors, unless you already have a proven track record of successfully running a similar business. You are also very unlikely to be able to raise the funds from angels (small professional investors). Instead, realistically, the funds are going to have to come from you, your family and good friends – or at least a critical mass of the funds will. Perhaps once you have $30,000 accounted for you could raise the other $20,000 from the friends and family of your good friends.
Needless to say, you are going to need a well thought out and designed business plan in order to secure this initial seed capital even from people that know and trust you. Your plan should cover several areas.
The plan must start from a premise of how many customers you will be able to attract and how much revenue can be generated from each customers, on average. The revenue model is the same as for a casino: there is a “house edge” in financial brokerage, so if you assume X number of customers per year with average revenue from each of Y, you have a projected income.
You should understand the business and understand the trading that your potential customers are looking for. A good place to start would be our binary options trading guide. It also won’t hurt to understand some common binary trading strategies. Remember that your customers are going to be people who want to day trade from home and who are focused on options trading.
Of course, you will need a solid plan as to how you are going to attract those customers. A well-designed website will attract a certain number of “walk-ins” but you will probably also need to purchase web traffic and also open a call center with a sales team which will work on cultivating telephone leads. You will also need to pay for at least some of these raw leads, unless you have some way of generating them yourself.
Everything else that you do must take this projected revenue into account first, as you are going to need to survive until this revenue comes in, and if anything goes wrong with the plan and you either cannot attract enough customers or somehow you do not generate enough revenue from their business – then your business will be in serious trouble and your initial investment might go up in smoke.
Designing Your Market Offer / Functionality
Your brokerage will need to offer the right kind of online presence, functionality and trade offering to attract the type and amount of clients that your plan calls for. Marketing must be the driver here in this area. Before you turn to turnkey back office providers, you will have to establish whether what they offer will be enough to meet your goals. You will not be able to build a customized back office system on your budget of approximately $50,000 but it is important you don’t just assume a turnkey solution which meets your budget is going to be enough to allow you to achieve your goal.
Select A Turnkey Back Office & Front-End Provider
There are a number of companies which can offer you a complete service in providing a complete trading platform and CRM solution. I am not going to be recommending any here, a small amount of research should be able to locate them quite easily. They usually have extremely responsive sales teams so once you have an idea of what you will need, shop around and talk to them all.
Build Your Physical Location and Staff
On a budget of $50,000 a physical location and staff is mostly going to have to wait until your revenue stream develops.
Even in this era, you are still going to need staff and a physical location, meaning an office. There is no reason why you should not start small and expand as revenue grows. Regulation is going to be a key factor here: if you will be physically based somewhere, you might need to be regulated there. If you want to be in a place with no regulatory requirements, consider first how your clients are likely to feel about that – but don’t forget that you also might not be able to afford regulation yet.
Secure Appropriate Regulation
Again, securing regulation is probably going to have to wait until you have more revenue, as it is almost certainly going to cost at least $15,000 which is a very large chunk of a starting capital of $50,000.
When you do begin to expand and need to get regulated, you will need to hire a lawyer with expertise in this field to prepare and manage your submission for regulatory approval.
The final additions to your team will have to be hired and trained as your binary options brokerage is finally launched. Do not think for a minute that the most challenging part is over though – it has just begun. You will now need to monitor progress and if income does not start streaming as planned, decide what measures can be taken to ensure that income is generated on target. However, proper planning before going live can give you the best chance possible of achieving your goal of building a successful binary options brokerage.