Trading floors are often associated with large investment banks like Morgan Stanley and Goldman Sachs. They are simply large offices where their traders gather every day and execute their trades.
However, these days, thousands of traders from around the world are opening their private floors and making a lot of money doing it. While some of these are individual traders, most of them are proprietary or prop traders.
Prop traders are different from ordinary retail traders because they don’t use their money to trade. Instead, they use liquidity providers who provide them with cash to trade and then share their profits. Some of the biggest prop firms are Canada’s Day Trade the World (DTTW) and America’s Hudson River Trading (HRT). Here’s a guide on how you can start a forex trading floor.
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Become a successful forex trader first
The goal of starting a forex trading floor is to maximize your returns in the market. Obviously, you can make more money if you have a team of five professional traders than when you are alone. That’s in part because the forex industry operates on a 24-hour basis, which means that you can have teams trading in shifts.
So, the first step of opening your forex trading floor is to have a well-defined strategy that has succeeded in many years. That’s because you want the people you hire to continue using that trading approach.
Fortunately, there are many trading approaches you can use to become a successful forex trader, including:
- Algorithmic trading. This is the approach where you use algorithms or robots to execute trades. In fact, most forex trading floors use this approach.
- Scalping. This is another popular approach, which involves buying and selling currencies within a few minutes. With a floor, your team can open hundreds of trades per day.
- Swing trading. This approach is not popular among trading floor owners because it involves buying and holding pairs for a few days.
- Arbitrage trading. Here, traders open correlated and uncorrelated trades with the goal of benefiting from the spread.
Register a company
The next step is where you register a company in your country. If you are in the United States, you need to go through this step to help you stay on the right side of the law. It will also help you lower the total taxes you pay to the government.
Most importantly, having a company can help you raise money from outside investors, including individuals and institutions. In fact, unless it is someone you know, many people will find it difficult to invest in a person with no registered company.
Also, if you are raising funds from investors, it is recommended that you register as a registered investment advisor.
Hire and train your traders
The next stage of starting a forex trading floor is where you hire your traders. In most cases, this is usually the most important step in your floor-ownership journey. That’s because hiring experienced traders who share your vision will make it easier for you to start the floor. It will also reduce the likelihood of you losing money.
Depending on the amount of money you are starting with, we recommend that you hire people who have been trading before. If you are on a low budget, another approach is to hire people who have just cleared campus.
After hiring, training is the next important process. In this step, you will basically take your new employees through your trading strategy. This will include guiding them on how you analyze potential currency pairs and the key items that you watch out for when trading — as such, hiring people with a deep understanding of the market will simplify this step for you.
This stage also includes having your traders go through a practice or demo account. This is an account that contains live data with virtual money. Ideally, you should let them trade consistently in a demo account for about three months and see whether they are a great fit for your forex trading floor. In this, you should only hire traders who demonstrate a long period of profitability.
What you need on a trading floor
A forex trading floor requires a few important items, including:
- A good forex broker. You need to have a good and reputable forex broker with access to all currency pairs and technology.
- Fast computers. Empower your day traders with the best computers. At a minimum, it should have a processor like Intel’s i5 or AMD’s FX-4300.
- Fast internet. Install internet from at least two quality companies to ensure that the floor is connected at all times.
- Finance television. Have subscriptions to Bloomberg, CNBC, and Fox Business television to give them access to breaking news.
- Finance feeds. Regardless of the strategy you use, it is important to provide your traders with access to the best financial feeds or websites like the Wall Street Journal and Financial Times.
- Floor. Finally, you should have a good trading floor. As a start, to cut costs, you can even start it in your spare room.
Finally, after equipping your forex trading floor and training your traders, the final step is to start trading. As the floor-owner, your role should be to both trade and to ensure that your traders are doing a good job. To achieve this, you need to be accessible to them and to always monitor what they are doing. For example, are they doing what you trained them to do?
At the end of each trading day, you should spend time reviewing what the traders did and to identify areas where they can improve.
Starting a professional forex trading floor is something that most traders wish for. This is because a floor helps them to maximize their returns and minimize the overall risks. Also, a floor is similar to a hedge fund in the way it operates. Using the information we have highlighted here can help you start a good and profitable floor.
In summary, you just need to have a good and well-tested day trading strategy, have good and experienced traders and have a well-equipped floor.