stock broker
Banking Terms -> stock broker
- Stock brokers are professionals who trade securities such as shares on behalf of investors. They buy and sell financial instruments through agency only firms or market makers and are sometimes employed by brokerage firms. Stock brokers offer different types of services, among which execution-only services. Here, brokers simply follow clients’ instructions on when to buy and sell securities. Discretionary dealing is another type of service through which stock brokers stick to the investment objectives of clients, then making all decisions to deal on behalf of clients. Finally, stock brokers also engage in advisory dealing whereby it is the broker’s task to give advice on what types of shares to trade. The final decision, however, is in the hands of the investor.
Stock brokers invest on behalf of corporations and individual clients, trading in the stock markets. They are members of a stock exchange, thus authorized to carry out transactions. Whenever corporate entities or individual investors want to trade stocks, they have to turn to a brokerage firm. Most often, stock brokers counsel and advise their clients on the most appropriate investment instruments. They explain clients how the stock exchange works and ask clients about their financial ability and requirements. This helps choose the best investment alternatives. Brokers can send our orders to the floor by phone or a computer. When making a transaction, they supply investors with a price. The latter pay for the securities, and the broker proceeds to transfer the stock’s title, followed by performing certain clearing and settlement procedures.
Basically, stock brokers are agents who charge a commission or fee as to execute buying and selling orders for investors. They can be firms that do the same on behalf of investors, also charging a commission for providing these services.
Not long ago, only high net worth individuals could afford to use the services of brokers as to access the stock market. With the advance of Internet and advanced computer technologies, discount brokers have made appearance on the stock market. Discount brokers let their clients trade on the exchanges for a small fee, but they do not offer personalized service and advice. Anyone can use the services of discount brokers without worrying that they will have to pay a hefty fee or commission. Investors, who want to do research on their own, without wasting a lot of money, can use the services of discount brokers. This is an excellent option for investors with experience on the stock market. Beginner investors would be wise to avoid the services of discount brokers because of the use of advanced terms and systems. It is better to turn to traditional full-service brokers. Discount brokers such as E-Trade and TD Ameritrade also offer advanced trading systems which are a good solution for active and frequent traders. In addition, Bank of America and other brokers started offering no-commission trades to customers who hold certain amount with them.
It should be noted that full-service brokers offer a wide range of services to their customers. These include tax tips, advice and research, retirement planning, and others. Naturally, the commission full-service brokers charge is higher compared to discount brokers. They are, however, very useful considering their expertise and knowledge. Full-service brokers work directly with investors as to determine and meet their investment objectives. They either make transactions on behalf of clients or manage clients’ portfolios independently. While their services are pricey, they aren’t as exclusive as boutiques, for example. The latter are small-sized brokerage firms which offer limited products and services to certain clients only.
Finally, other professionals perform similar roles to that of stock brokers. Financial advisors and investment advisors are among them.
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