Establishing a Brokerage Firm — Integrations, Liquidity Providers and Costs

4 min readJul 13, 2022

This is the fourth post in my ‘Establishing a Brokerage Firm’ series. In the first one, I drew the basic layout for starting this type of business — I helped you define your brand and service, product package, and target audience. In the second post, I discussed all things related to regulation. In the third post, I detailed the three approaches to business growth. Now I will talk about integrations, liquidity providers and cost estimates.

Payment methods

In order to start the flow of incoming customers and smoothly run a customer payment process, you need to choose an adequate payment processor and provider via payment gateways. It’s important that you pick an excellent system to handle sensitive information. After all, you will deal with clients’ credit and debit cards.

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The gateway’s purpose is to transfer transaction data and either approve or decline a payment. The payment processor’s end is to mediate between the merchant, cardholder, acquiring bank, gateway, and issuing bank. That is to say, it manages all clients in one merchant account, offering almost identical rates to all customers.

Pick your PSP (Payment Service Provider) according to these:

  • Support services — A large number of payment rejections can cause profit loss. You must pay an additional 3–4.5% of direct debit payments for collections and warnings. Most PSPs provide risk protection services to confront this.
  • Gather information about the PSP’s reputation: Focus on the level of support, quality, and longevity.
  • The PSP must comply with global security standards, like Payment Card Industry Data Security Standard (PCI DSS).
  • Take a close look at the package deal the PSP offers you. I recommend choosing a service package that includes international coverage and multiple payment methods.
  • It’s preferred that you’ll pick a PSP that has API & iFrame connections.
  • Check whether the account opening process is straightforward and efficient or not.
  • Usually, PSPs require a one-time setup fee and a fixed monthly charge starting at 475 Euros.

Liquidity providers & connection to exchanges

A liquid market leads to smoother transaction flows and competitive prices. That’s why liquidity provision is vital for efficient trading. Liquidity providers’ main goal is to maintain a steady flow between supply and demand and provide the best prices, both for buying and selling.

If you choose ECN/STP (Electronic Communications Network / Straight Through Processing) network) to execute your customers’ trades, remember to connect to multiple Tier 1 liquidity providers. Doing so will ensure the best spreads and dealing rates.

Remember that when brokers connect to the exchanges, they use the FIX Protocol (Financial Information eXchange). Most trading systems have FIX API connections available.

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Examine these factors to find a suitable liquidity provider

  • The overall package should provide multi-asset liquidity, access to the FIX protocol and historical data, and nominated accounts in different currencies.
  • Market depth: A high number of buy and sell at each price suggests a higher market depth, indicating market liquidity.
  • Fast execution — with slippage or re-quotes.
  • Low commissions and competitive spreads.
  • Data feeds should be stable and reliable, with feeds reflecting real-time prices from different exchanges.
  • The liquidity provider should comply with regulations the same way a broker does.
  • Automated and compliant reporting system: Trades, FIX bridge, swaps & rollovers, order book access.
  • Software: FIX protocol and other APIs, MT5 bridge connections, FIX bridges.

Money talks

Asides from core technologies, all further integrations you need will require more capital. Having said that, all service providers have varied business plans, most of these leave room for negotiation. Remember that when you choose your plan.

Keep in mind that commissions on trades aren’t relevant today. You can still apply deposits and withdrawals, inactivity, and overnight fees. As most brokers, you can also choose the bid-ask spread as a key source of revenue.

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The bottom line

As you can see, the entrepreneurial way is far from easy. Establishing a brokerage firm requires in-depth research, a great amount of capital, advanced technology, an excellent staff, willpower, negotiation skills, and an innovative mind.

The best advice I can give you is this: Be patient. Progress is usually a slow and exhausting process. Take necessary precautions, but stay optimistic. More than anything, remember to enjoy the journey. After all, only then you’ll be truly able to appreciate your accomplishments.