useful response thanks. But no one has mentioned the minimum capital required to become a broker dealer yet, I am sure it must be substantial sum - maybe 25 Million or more -- just a guess??
You can open a broker dealer with much, much less than that but competing with a firm like IB is way beyond just being a B/D.
This is completely wrong. Brokerages are suffering because of price competition, total loss of float income due to ZIRP, and increasing regulatory and compliance burdens. You can buy an FCM for almost nothing these days -- they're all looking for an exit door. If you think it's a great "business model," then pick one up and give it a go.
now u want to open a brokerage? what happen to your idea of opening a prop firm? or your idea to open a trading educational school (penny stock pumper)?
Broker dealer requirements are not specified in terms of capital in the GAAP sense, but rather a regulatory definition known as "net capital" which is essentially a working capital measure, albeit much more conservative than that defined under GAAP. It deducts from one's net worth assets deemed illiquid and assesses deductions for operational inefficiencies (e.g., under margined accounts, delivery fails) and haircuts the value of investment and/or trading positions held by the broker. Here's the SEC rule which specifies the minimum net capital required of a broker dealer an which you can search: Exchange Act Rule 15c3-1(a), 17 C.F.R. § 240.15c3-1(a). Note that the requirement varies depending upon the type of business the broker dealer is registered to conduct and can be as low as $5,000 if the broker does not receive/hold client assets and does not carry or clear accounts. Most broker dealers of scale will carry client accounts on their own books (rather than introduce them to another broker dealer) and will self clear those trades as well, thereby availing them and their clients of lower costs. For this type of broker, the minimum dollar requirement is higher ($250,000) but the actual net capital required scales upward based upon measures (aggregate indebtedness or aggregate debit items) which tend to increase somewhat proportionately as the client base increases. The IB LLC (US broker dealer) financial statements are available on the website and as of 6/30/13 it reported capital of $2.21 billion and regulatory net capital of $1.91 billion, which was $1.66 billion in excess of that required.
This particular example, at this point in time, may seem to be "dying", but the model itself still works... All things travel in cycles... I'm willing to bet the idea is fermenting in the mind of someone who disagrees, and sees a great opportunity. Riches pass to the risk-takers. Long live the risk-takers! Similar to businesses that fit the model: Exchanges (stocks/futures/currency/options) Bookmaking (legal or otherwise) Insurance in all forms Currency exchanging (airports, not Forex) Money transfer (Western Union, PayPal, etc) eBay Banking (before the 1970s when they were focused on safekeeping customer funds and content with making the spread)