How to Start a Stock Brokerage Firm

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A stock brokerage firm acts as a bridge between buyers and sellers and facilitates efficient trading of securities. The firm can be an institution or a retailer. An institutional firm is a member firm that comprises money managers, floor brokers, and agency clients.


On the other hand, retail brokerage firms consist of non-member brokers who trade through a member firm. Although some retail brokerage firms operate as floor brokers, most of them do not have direct access to market makers or other market exchange specialists. Here’s what you should do when starting a brokerage firm.

1. Pick Your Target Market

You can be a stock exchange member dealing with ultra-wealthy individuals or register a small brokerage account and operate under a floor broker. Due to limited stock exchange seats, those who wish to become stock exchange members can only lease a seat from a current occupant or wait for a vacancy on sale.

If you open a small brokerage firm, you can buy and sell shares on behalf of your clients or be a financial advisor. Your services may include helping clients choose the best investment opportunities, how much to invest, and how much to save. Ensure your financial advice is tailored to your target market.

2. Get the Right Licences

Just like any other business, a stock brokerage firm needs the right licenses and permits to operate. Unless you intend to operate in one state, your firm must be registered under the Securities and Exchange Commission after filing Form BD. You must also register with the Financial Industry Regulatory Authority (FINRA)—a non-governmental regulatory organization for brokerage firms in the US.

Brokerage firms must also register with Securities Investor Protection Corporation (SPC) to insure themselves against losses. The insurance company offers up to $500,000 broker liquidation.

3. Structure Your Business

Modern trading firms offer customers online security trading and account management. You’ll need a good platform to receive and route customers’ orders. You’ll have to invest in stock trading software, a website, and computer servers. All these, coupled with licensing charges, can be costly for a startup. Struggling startups can seek financing options like bank loans or use a pre qualify auto loan to kickstart their operations.

Ensure that your trading software aligns with your offerings and can scale with your business. Tech companies dealing with stock brokerage software can help you choose the right tool based on your needs.

4. Determine Your Fees

Set your fees based on your expenses and the target market. Also, research your competitors and find out how much they charge for financial advice and stock trading–you don’t want to be too expensive. You can offer free financial advice to draw clients as most new brokerage firms do. However, charge for specialized financial advisory services.

Lastly, choose financial advisors who know the industry very well. The last thing you want is failing when you’re just getting started. You can pay them on commission basis, according to their performance, or simply pay them a flat fee.

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