Starting a new brokerage can be compared to building a house. There are aspects of each of these endeavors that are inherently designed to be flexible; for example the color of the house, which is akin to the broker’s website and marketing, is designed to be easily changed over time. On the other hand, there are decisions made early on in each process that can drastically dictate flexibility and expansion for years to come. I would call these aspects, to stick to my analogy, the ‘foundation’ components of a brokerage operation. Though possible to change down the road, it can be highly disruptive and costly to do so and thus having a good idea of where you want to take your business in the future is essential in the early stages. You do not want to build a mansion on a foundation of cardboard.
Establishing a good foundation for your brokerage is best done by identifying which parts of your brokerage are most likely to change in the future. How will your client base evolve over time, and what mechanisms to interact with your brokerage operation will they require? How will you manage client execution as your volumes and demand for more complex liquidity environments increase? How will you react to potential regulatory changes? Along the path of growing a brokerage from start-up to global leader, the answers to these questions will inevitably change over time. The important decisions are those that avoid re-building your entire business each time the market dictates a change.
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