DEFINITION of broker
A broker is an individual person who arranges transactions between a buyer and a seller for a commission when the deal is executed.
WHAT IT IS IN ESSENCE
Broker places trades on behalf of a trader. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Brokers can do so in a number of different asset classes, with the most well-known being stockbroking.
If your broker operates in an execution-only position, it means that they only act as a platform to allow trades on an exchange or over the counter. And they do not give investment advice. These brokers charge commission on the trades they place for you.
But there are brokers who can offer an advisory service like advice on what to invest in, as well as executing the trades. They will only execute trades on your behalf once you have given the go-ahead.
Discretionary brokers trade fully on your behalf, they make trades without consulting you. This allows them to make trades much faster. Both advisory and discretionary brokers will charge fees for advising on or managing your shares for you.
Neither broker’s role should be confused with that of an agent – one who acts on behalf of a principal party in a deal.
HOW TO USE
If you’re planning to invest in the stock market then you will need to understand the fundamentals of stock market investing first. One of the key things you need to know is that you will need to use a stockbroker. No matter what your knowledge of the market is. The stockbroker can be a single person you hire or it can be done online through a firm.
So, you can choose a stockbroker who you can meet in person to help handle your portfolio. Or you maybe decide to use a stock brokerage firm that can handle your transactions for you. Never mind, you always need to use a middleman to buy you’re the stocks.