Freevestor was an offshore brokerage for 28 Hours. Let's learn from this.
The dream of becoming an offshore brokerage in the retail Forex industry was not exactly the plan. However, the retail Forex industry found me. If it sounds like a touching autobiographical piece, it's not. The objective of explaining how Freevestor came to be and existed as an offshore brokerage is meant to serve as a lesson for anyone taking their pursuits offshore. So I have decided to chunk out the various lessons I took away from my adventures offshore and make it a regular feature on Wednesdays. It's like a blend of O.J. Simpson's "If I Did It" with Hillary Clinton's "What Happened" except with less excuse-making and important takeaways for those entering not only the Forex industry, but the offshore finance world. Each article in this series focuses on micro-issues that were a part of the process.
I did not make mistakes at every turn when I was doing this, there were things that I did absolutely right and a lot of "What-ifs?" along the way. It's not about going through the mistakes, but rather the takeaways and important things to know if you are entering the offshore brokerage realm, offshore finance in general or even forming an offshore company. It is more of "What to expect" sort of a tone than Monday Morning Quarterbacking the rise and fall of my defunct brokerage.
With that out of the way, this article is just going to focus on how this Offshore Forex Brokerage came to be in the first place and it may explain why many end up gravitating toward Forex in the first place. However, it was evident that the shares market offered far less in the form of innovation and flexibility than the Forex Market. It is more of an introduction to what Freevestor was than any sort of a special insight, which is to come.
It was a massive pivot to become an Offshore Brokerage.
It strangely started as a concept inspired by a free sports gambling game called CentSports, remember it? CentSports was bought out, but they had built relationships with sportsbooks and had various forms of advertising. Before the Financial Crisis hit, there were plenty of free advergaming platforms out there and all of them eventually were bought out or flamed out.
However, my concept was going to be different and I had always wondered why the Stock Market Game that we played in school did not carry over into this same advergaming realm. With the same sort of a business model as CentSports where users get funny money to trade stocks ($500) and a prize of $500 to be used at a partner discount stock brokerage for any user that attained $10,000 in their game account. The objective was to use advertisements and relationships with brokerages like TD Ameritrade or Scottrade to bring millennials toward the stock market. It was a semi-finalist in my Business School's Pitch Contest, but I refused to let the idea get out there.
How does this become an offshore brokerage in the Forex industry?
Barrier to Entry: Technology
I sat on the idea for a few years and then proposed it to friends during Memorial Day Weekend of 2011. My friends were expecting something outlandish and stupid. What they got instead was a pretty solid concept that was not validated yet.
What would follow were numerous phone calls with technology platform providers and it being 2011-12, the platforms were not exactly ready for the mobile and app generation. They also were clunky, expensive and not bespoke.
I was not a coder (I'm significantly better at it now, but would never claim to be a good one) and to get this built from scratch would have taken a long time and a lot of money would have been needed.
Who spearheaded the technology and innovation? Forex.
While in the United States, platforms were sorry and behind the times. The Forex industry offered many options as far as technology needs and ease of entry. It was downright astonishing and I courted many different brokers/providers to come up with my customized solution.
Conversations with industry CEOs and boutique investment bank CEOs happened. It was a very thorough process, but I was very exacting in what I wanted. The best part is that I could have had it almost all of it for FREE as an Introducing Broker. The technology was almost there ready for me and I was looking to find a way to piggy back on it through White Label solutions with the hopes of getting exactly what I wanted.
Basically, if you had a business model you could create a relationship with a Forex Brokerage. I had a unique one then and I have a unique one now.
Consider that the trades are far more frequent in Forex and with the leverage, an introducing broker pockets more than a discount shares broker on a trade. This attracts so many into this industry and it is how a Stock Market Game becomes a Forex Game.
Why take 25% when you could have it all? You're the broker.
It was surreal to even consider, but when the best option as far as meeting needs was to become the broker, it was the strangest feeling in the world. It's oddly empowering and there are a lot of young entrepreneurs around the world who probably have followed in those same shoes and even said, "I'm going to have my own offshore brokerage."
It is an odd feeling, but it was an opportunity that was far beyond anything I could have imagined or was on the trajectory to reach. Running a Financial Institution, not just managing one or franchising, but rather having your own Financial Institution is alluring. It's stressful, expensive and alluring. It's a gamble, but the right business model was needed and the decision was made based on hard financials. Would not have done it otherwise.
An Offshore Brokerage in Forex is not all upside
Consider all of the elements of running a brokerage that you could think of off the top your head. You need a sales and marketing team, a legal and compliance team, a technology and operations team, a financial department, etc.
Then try to imagine doing all that by yourself while owning 100% of the profits and losses.
Welcome to my world circa 2013-2014. I knew what I signed up for, but this was something I had never thought I'd ever have. It was my business concept on steroids and I couldn't imagine myself failing.
I had a full road map and a clear direction toward regulation, changing banks, and eventually building a team in South America. The problem with being offshore is that while you can account for legal and compliance risks, have policies in place, be ready for an audit and have contingency plans... one little thing that is beyond your control and has nothing to do with your business can take you down.
It's a lot like HBO's Silicon Valley except without the some of the cartoonish character elements that may exist and the occasional deus ex machina.
In Summary, This is Just a Mere Introduction
- It is important to know how this now defunct brokerage came to be in the first place, not everyone dreams of creating an Offshore Forex Brokerage.
- Business plans evolve and sometimes the business grows before you even start. Yes, I got ahead of myself.
- FinTech innovation, pursuit of larger revenues and lack of technical barriers attracts people to Forex.
- Creating an offshore brokerage is extremely challenging.
- There are elements of this article that were conveniently left out because those elements are part of future articles in this series. The process was not as simple as it is presented.
- Creating an offshore brokerage or company is not sexy, but it is a necessary and legal decision that is made by many.
With this introduction out of the way with a few general business-oriented takeaways, it sets the stage for future articles where you get a unique insight into the issues on a more in-depth level. Everything from offshore bank accounts, offshore bank formation, offshore company formations, investors in your company, the wonders of Skype, regulations, maintaining sanity, licensing, registered agents, nominee shareholders, liquidity providers, manual trading, demo accounts, and much more will be discussed in these Wednesday articles. It's important to get an understanding of the perspective of someone in the industry who actually built it and lived to tell about it.
Nobody runs their offshore brokerage or financial institution by the pool. Absolutely nobody.