by Brian DeChesare Comments (9)

Forex Brokerage: The Best Path into the Finance Industry in Cyprus?

Forex Broker CareerDoes your location determine your destiny?

Maybe not, but your timing and location make a big difference.

For example, if you had graduated without a job in 2009 and you wanted to work in finance in New York, you probably should have starred in a Mission: Impossible movie instead.

Cyprus is another region where timing made a huge difference.

If you graduated right when the banking industry there collapsed, you’re probably far away from the country by now.

But if you had finished school a bit later, you might have found yourself working in forex brokerage, one of the most well-known industries there.

Our reader today did something like that, using a Master’s in Finance degree to weather the storm before winning a role at a top brokerage in Cyprus.

Here’s what you do as a forex broker, how you get in, and why it might be for you if you have an inclination for sales & trading:

Forex Brokers 101

Q: So how did you decide to get into this industry?

A: I’m originally from Cyprus, and I graduated overseas a few years ago with a degree in Construction and Engineering.

I returned home to work in the sector, but the economy was doing poorly, and opportunities were limited.

I had always been interested in investing, though, and I was trading equities and forex on the side the whole time.

I noticed that many forex brokers had begun operating on the island, so I applied to a few firms, completed several internships, gained a few more qualifications, and won a full-time role in the sector, where I am still working today.

Q: I see.

So what exactly does a “forex broker” do, and how do they fit into the bigger picture?

A: We exist because there’s no central marketplace for foreign currencies.

It’s the largest financial market in the world, but you have to go through a broker to participate.

It trades 24 hours a day, 5.5 days per week, and all forex trades involve buying one currency and selling another at the same time.

These factors mean that our average day can be very, very different from what you see in prop trading or sales & trading at banks.

As brokers, we’re the intermediaries between the buyers and sellers.

Most market participants are buying and selling currencies to:

  • Hedge currency risk; or
  • Speculate for profit.

Technically, you could trade forex by going through a bank or larger institution, but we offer services and benefits they don’t:

  1. Lower Minimum Deposits – Traditionally, forex trading was inaccessible to retail investors because high minimum deposits were required. But we let retail clients with less capital participate. We do this by negotiating agreements with the liquidity providers where they agree to accept smaller order sizes in exchange for a minimum volume each month.
  1. Leverage – We also let retail investors trade on margin (i.e., borrow money to trade), which is essential for those with less capital – but also potentially quite risky.
  1. Other Services – We also offer services like charting platforms, analysis tools, and more. Large banks and other institutions might also offer these, but only to clients above a certain capital level.

Most forex brokers are on the lower end of the spectrum; the hierarchy would look something like this:

Traders –> Brokers –> Liquidity Providers –> Institutions –> Banks

Q: So are all these firms independent? Or are some also owned by or affiliated with larger institutions?

A: Most forex brokers in Cyprus are independent and not affiliated with large institutions.

These firms all have slightly different minimum deposits, minimum positions, and maximum leverage ratios. Leverage is limited in the U.S., but in other regions, you sometimes see maximum ratios of 1:500 or 1:1000 (or even more than that!).

There are a few large brokerages that are affiliated with larger banks or finance firms, and either act as branches of these firms or operate as “white labels” with the structure of a tied agent (i.e., an official company representative that operates under a different name and can recommend only products from the bank).

Keep in mind that this is still a small industry – there are, at most, around 150 forex brokers on the island.

Q: And why exactly are forex brokerages so common in Cyprus?

Do any other small islands have them?

A: Cyprus and Malta are both popular for forex brokerages because it’s easier and cheaper to apply for and maintain a license there.

Since both Cyprus and Malta are EU member states, they can provide cross-border services to the rest of the EU. So we gain access to a huge market without paying the higher costs required in Germany, the U.K, or other large countries.

With that said, forex brokerage is not exclusive to small-island states; there are firms in the U.S., U.K., Australia, Ireland, New Zealand, and many other places.

FX brokerages are just more concentrated here.

A Winning Pair: Getting into Brokerage

Q: So let’s say you’re interested in the industry. What jobs are available, and what do you do in each role?

A: The main roles are:

  • The Dealing Room – The staff here decides which orders to keep internally and which ones to pass onto the liquidity providers. Dealers are mostly responsible for hedging risk – if the firm looks overexposed to one market, they have to adjust their positions appropriately.
  • Sales – They bring in new clients or get existing ones to spend more.

The teams aren’t that much different from what you see at a bank, but there are fewer divisions since these firms are so small.

Q: And you can apply and get in as an undergraduate or recent graduate?

A: You can win entry-level roles in the groups above with just an undergraduate degree.

But most department heads and managers have post-graduate degrees, along with several years of experience in the department.

The Cyprus Securities and Exchange Commission (CySEC), with which most forex brokers here are registered, also imposes other requirements on department heads (e.g., a degree and two years of full-time work experience in the function).

Q: How do you recruit for these roles? And what types of questions should you expect in interviews?

A: The process is very random since these are tiny firms; it’s even more random than the process at prop trading firms.

Sometimes it’s as simple as an acquaintance introducing you to his manager at a brokerage, and then you answer a few interview questions and receive an offer there.

At other firms, you might have to go through several rounds of interviews and answer more difficult math/technical questions.

Just like interview questions differ significantly for sales vs. trading roles, the questions here also differ a lot between the dealing room, the back office, and sales.

You’ll get more questions that test your psychology and “fit” in sales and the back office, whereas dealing room questions are more about testing your math abilities.

Q: What are example math questions you might receive in interviews?

A: Here are two examples (Note that a “pip” is equal to 0.0001 for a currency pair displayed to four decimal places and 0.01 for Yen-based currency pairs):

“Let’s say a client opens a long position of GBP/JPY and sets his Take Profit level at 60 pips and his Stop Loss level at 40 pips. What is the chance of reaching either level?” (50%)

“If a client’s order of 2 Lots USD/CHF is on the internal book and not on the liquidity provider’s book, his account balance is GBP 1000, and his leverage is 1:400, how many pips will his position have to go against him until he gets stopped out?”

The answer is that if the broker’s stop-out level is at 100% of margin, the pip value of USD/CHF in GBP terms is roughly 14.13 GBP per pip, so if his position goes against him by roughly 35 pips (1000 / 14.3 / 2), the client gets stopped out.

On the Job in Forex Brokerage

Q: If the forex market trades 24 hours a day, potentially your hours could be even worse than those of investment bankers.

I’m assuming staff members simply take on different shifts, correct?

A: Yes. In the Dealing Room, a typical day starts when I walk in and receive the shift handed over from the previous Dealer.

I always check the exposure book first and make sure it is within acceptable parameters, and then I check all our systems, review client orders, and make sure the data and price feeds are up to date.

I also spend time updating instruments such as swap rates, answering questions and complaints, and contacting liquidity providers to get the best pricing and execution for each trade.

There are differences here because some brokers take client orders on their internal books and act as “market makers,” whereas others just pass client orders directly onto a liquidity provider.

So you have to check the exposure book a bit differently, but the cardinal role in the Dealing Room at any firm is to monitor the exposure book at all times.

The shift ends after ~8 hours, and then we hand off our work to the next shift.

Factoring in the time before and after your shift begins, it’s more than a standard 40-hour workweek, but the hours are still far better than in other finance roles.

Q: Can you give a specific example of a task a Dealer would have to complete on the job?

A: Let’s say that there are many client orders for EUR/USD to go long, and the market looks bullish (i.e., it’s moving in the direction clients want).

The Dealer would have to buy, using the company account, the same amount of EUR/USD as what’s on the book.

If it profits, those profits are used to pay the clients’ positions. If the market goes in the opposite direction, the Dealer would lose money, but the clients’ loss is the broker’s gain if it’s on our internal book.

As I mentioned before, our main responsibility is hedging risk.

So if it seems like client orders are too concentrated in one direction, we have to make trades that reduce our risk and limit losses.

Q: And what about the compensation?

A: It’s not so great here as a junior employee; you’d earn more in sales & trading at a bank in the U.S. or U.K., and you’d probably even earn more in prop trading, where pay is highly variable.

However, senior staff in the Dealing Room get quite a good deal since the pay scales up substantially at that level, and since some brokers offer bonuses and commissions on top of the basic salary.

You would still earn more at a large bank, but you’d also never find a position with such good hours.

Very rough base compensation estimates would be:

  • Junior Dealer: 10K – 18K EUR / year
  • Senior Dealer: 19K – 30K EUR / year
  • Chief Dealer: 31K – 50K EUR / year

Bonuses are based on a percentage of earnings made on the internal book, and sometimes firms do a profit share with their capital as well.

These base salaries look low, but keep in mind that average wages and the cost of living are both much lower here (you might rent a 1-bedroom apartment for 300 – 400 EUR / month, for example, and the average monthly salary is around 1K EUR).

Q: So do most people stay in forex brokerage?

The normal workweek does seem quite tempting.

A: Not really, mostly because you can work in a stressful area like the Dealing Room only for so long.

A lot of Dealers stay for 5-10 years and then move into Sales or other roles at the firm, or sometimes even go into consulting, accounting, or commercial banking.

It’s very common for people to hop between different firms since there are only ~150 brokers in Cyprus; many firms poach staff and lure them over with better positions and higher pay.

That’s probably the most common “exit opportunity,” though I guess it’s not a real exit since it’s still the same industry.

Q: I see. So thinking about everything we discussed, who would be a good fit at a forex brokerage, and who would not?

A: You must be very good at dealing with pressure when large amounts of money are passing through your books quickly.

You need this skill for S&T and prop trading as well, but it’s more important here since you’ll be exposed to larger amounts of money earlier on.

You should also be analytical, good at problem solving, and highly attentive to small details such as incorrectly entered orders on the exposure book.

If you panic under extreme pressure or fear stressful situations, stay away!

Q: Great. Thanks for your time.

A: My pleasure.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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Comments

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  1. How much percentage will the staff get from client’s profits?

    1. Sorry, don’t know about that one.

  2. How much percentage the staff will get from client’s profits?

    1. Sorry, not sure, perhaps other readers can answer this one.

  3. Can you please explain the calculations? I’m confused with “the pip value of USD/CHF in GBP terms is roughly 14.13 GBP per pip”

    1. Sorry, I don’t know, and the interviewee didn’t explain it. An FX reddit or other forum might have the answer.

    2. I will explain it: 2 lots of USD/CHF = 20 CHF per pip. It was converted then in GBP at the exchange rate of 1.4150 and there you have the value per PIP for that particular position.

  4. [quote]“If a client’s order of 2 Lots USD/CHF is on the internal book and not on the liquidity provider’s book, his account balance is GBP 1000, and his leverage is 1:400, how many pips will his position have to go against him until he gets stopped out?”

    The answer is that if the broker’s stop-out level is at 100% of margin, the pip value of USD/CHF in GBP terms is roughly 14.13 GBP per pip, so if his position goes against him by roughly [b]45[/b] pips, the client gets stopped out.[/quote]

    There must be a typo here, for it should be 35 instead of 45, if i get it right:
    1000/14,13/2=35,39.

    BTW, thanks for the post!

    1. Thanks! Yes, thanks for adding that, I believe you’re right that it’s a typo. I’ve updated the post.

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