Stockbroker

DEFINITION of stockbroker

A stockbroker is a person or firm that offers a stockbroking service.

WHAT IT IS IN ESSENCE

Stock exchanges have strict regulations on who can trade shares directly on their books, that’s why most individual investors do so via a stockbroker.

Stockbrokers buy and sell shares on behalf of their client.

There are several different levels of service a stockbroker can provide:

  • Execution-only stockbrokers will complete orders on their client’s behalf but do not offer any advice
  • Advisory stockbrokers will offer advice on where to trade, but only trade on orders submitted by clients
  • Discretionary stockbrokers will trade on behalf of their clients, executing trades without their input

Most stockbrokers trade shares on an exchange or over the counter and they charge a commission for executing trades, or a fee for retaining their services, sometimes both.

Stockbroking is a service which gives retail and institutional investors the opportunity to buy and sell equities.

HOW TO USE

You will need the stockbroker if you want to buy stocks through exchanges.

The actual execution of stock trades for individual investors is most often carried out electronically by a discount brokerage firm. But human brokers still handle trades. Particularly those for institutional investors.

Stockbrokers have knowledge about the markets. So they can offer advice about the best times to buy and sell. The imperative for them is to find clients the best prices possible. In exchange for that, the stockbroker gets a commission. It can be a flat fee or percentage of the value of the transaction.

Today, in time of online trading, there is less demand for human stockbrokers. But there are instances in which an investor wishes to work directly with the living person to execute a stock trade. For example, they may have multiple transactions they want to execute in a specific order.

Anyone who wants to become a stockbroker must have an understanding of the financial market and regulations.