What forex traders should know about white-label brokers

As a forex trader, you may have used a white-label brokerage without realizing. It’s not always necessary to identify white-label brokers, or even to understand what is meant by the term. However, a basic grasp of the concept will help you to make more informed choices as a trader, and to understand why a particular broker may be limited in the instruments and assets it can offer.

What does white label mean?

White labelling is a common business term that has a particular meaning when applied to forex trading. In its broader sense, it refers to a public-facing company buying another company’s product and then passing it off as its own. This practice is entirely legal and is generally done in a way that is beneficial to all parties concerned. 

An example would be ‘own brand’ lines like tins of baked beans or breakfast cereals in supermarkets. These may be manufactured by popular food producers for the supermarket, who can then put their own label on it and sell it alongside the manufacturer’s own product, often at a discounted price.

How does white labelling apply to forex?

In the world of forex trading, white labelling refers to a broker renting software, including a trading platform, and/or other technological and liquidity solutions, and marketing it as its own in-house or proprietorial product. This is often negotiated as an affiliate program, whereby a new brokerage is one of many outlets for the service provider, all of which nominally operate as independent entities.

Is white labelling fraud?

While most white-label brokers are trustworthy and legitimate, a lack of transparency can be a red flag for more underhand behavior. Some brokers present as self-sufficient entities but, in fact, merely act as an agent between traders and a prime broker or liquidity provider, skimming off an extra commission in the process. This in itself is not illegal, but if a broker is acting dishonestly, it should be a cause for concern. Learn how to identify forex fraud to protect yourself from scams.

Advantages of using a white-label broker

Trading on a globally recognized, tried and trusted platform can be to your advantage, even if the broker has rebranded it as their own. The most popular trading platform in the world, MetaTrader 4, is successful for a good reason. Straightforward and easy to use, it offers a wide range of instruments and options. Experienced traders are comfortable with its familiarity, and it is generally preferred to a bespoke platform.

The same consideration applies to other software solutions used by a white-label broker: generic options are widely adopted because they work. Any glitches or tech problems are usually solved quickly and efficiently, because this is the responsibility of a global provider rather than a small independent broker.

Disadvantages of using a white-label broker

As mentioned above, if a broker isn’t 100% honest about the services it provides, then this could be a sign of unscrupulous practices elsewhere. Additionally, the broker will only be able to offer those instruments and options that come with the package they’ve bought, which could mean the service provided to clients is more limited than might be expected.     

As a white-label broker has only minimal control over the product they provide, customer support and CRM services may be outsourced as well. Being forwarded to a different company than the one you thought you were dealing with can be disorienting and annoying when you’re trying to resolve an issue quickly.  

The white labelling system

White labelling helps new brokers to set up quickly and economically without needing the technological know-how to develop their own software and platform. White-label providers can make a profit by leasing their solutions to new brokers or to existing brokers wishing to broaden their range. Often it may seem like a white-label broker has made an exact copy of an existing platform model, when in fact, they’ve purchased the rights to use that model outright.

Should I trade with a white-label broker?

When choosing a broker, it’s best to have all possible information available. This includes being able to identify when a brokerage is white labelling. If you’re unsure of exactly how they operate, then it might be better to step away. On the other hand, a white-label operation may offer a world-class service at a reasonable price.

The best advice is to take all factors into account before making a decision, and to choose the brokerage that’s right for you.