Considering the number of brokerage firms in the market, starting a new company might be competitive. However, the competition shouldn’t rule out your plans of starting one. Financial investment markets have large participant numbers, where even if there are thousands of brokers, millions of potential customers still wait to hear about your product. Nasdaq alone is said to have more than 35 million trades often daily, and giants like Robinhood have more than 20 million overall clients.
The market is teeming with customers and potential users, and there are many ways for you to tap into these numbers. Read on to discover how to start a brokerage firm in a few easy steps. But before that, let’s go over some basics.
Needs to Know About Brokerage Firms
Brokerage firms are the middlemen for financial asset transactions, and they exist to help match two sides of the trade. That is, connecting the buyers to the sellers and doing so at the price best suited to both parties. Brokerage firms are usually quite knowledgeable about market information and have access to the expertise that a regular investor wouldn’t have.
At the same time, they are mostly licensed to carry out all transactions and maintain a level of security for the traders. These, amongst many other reasons, are why investors need their services. Now, there are several types of these firms, and before you think about starting one, you should know your options.
Full-Service Brokerage Vs. Discount Brokerage
Full-service brokerage services offer comprehensive services that extend beyond connecting buyers to sellers. They work with several products beyond financial service investments, diversifying into money management, estate planning, tax advice, and consultations. Their fees are as high as their services are broad, and sometimes, they have minimum account balance requirements when taking in their clients. This could start at six figures or higher.
On the flip side, discount brokers set up trade accounts and allow users to operate freely. They are the majority of online brokerage platforms you’d find out there, like your CFD broker and stockbroker. They connect investors and offer advanced tools and instruments that could improve their trading experiences.
Independent Vs. Captive Brokers
Captive brokers are those affiliated with certain companies and are obligated only to push such establishment’s products. These firms are sometimes affiliated with mutual funds or insurance companies and are employed to sell the range of products they offer. On the other hand. Independent is not affiliated with any establishment and can sell a fuller range of products.
How To Start Your Firm
Now that you have a detailed understanding of the types of brokerage services, it is time to discover how you can get started.
Have a Target Market
Building a plan is the first step to starting your business, and in this case, this plan involves deciding on your choice of service and target market. The financial market has loads of securities and assets. Sometimes, beginning with a niche in mind can help you manage the firm better. Cryptocurrencies, stocks, and foreign exchange are some options to start with. Then, you can add in other instruments.
However, if you’re working with a large capital, workforce, and resources and confident about starting big, give it a shot. The aim is to work at your capacity and build at your pace — remember, every financial service market requires relevant professionals and knowledgeable talent in each field.
Prioritize Regulatory Compliance
The financial market is marshalled by regulatory compliance. The National Futures Association (NFA), for instance, is the independent provider of regulatory programs for derivates in the United States, including forex. This body is responsible for granting the necessary brokers licenses to operate in the region, fighting fraud and enforcing control on the derivates market.
The Securities and Exchange Commission (SEC) is another important body and arguably the best-known agency in charge of financial market regulations in the US. Operating a brokerage service is impossible without getting proper licenses and regulatory compliance from these bodies, so it should be another priority in your process.
Use the Best Technology And Framework
The finance investment market has gone mobile, and this is not news. Technology and infrastructure, like fast and efficient software, should be prioritized when operating an online brokerage firm.
At the same time, your platform should offer tools and instruments that improve traders’ experiences. For forex traders, charting tools, technical analysis instruments, and risk management features are a priority, alongside data security, and your platforms should come with an advanced security model that investors can trust.
Initiate Marketing and Branding
No business can thrive without clever, well-timed marketing, especially considering how diverse the online market is. Hubspot’s state of marketing report showed that global retail sales are projected to amount to $30 trillion by 2026, and 78% of businesses that use social selling outperform those that don’t.
Marketing and branding give your brand an identity, and a voice and help connect with the right audiences, which includes social media marketing, networking with industry professionals, and paid advertising.
Key Takeaways for Starting Your Brokerage Service
A well-researched plan and enough capital to see it through are your first steps to becoming a broker in the financial market. Follow this up with proper licensing, great tools, and networking, and you could see great results. The industry is growing and adapting rapidly, so the earlier you start, the better.
