A stockbroker can refer to a person, broker-dealer or brokerage firm who buys and sells stocks on the stock market on behalf of clients. These sales of stocks are called ‘transactions’. A transaction has two sides, the buy-side and the sell-side. A trader’s broker can be on either or both sides of these transactions.
The main responsibilities of a stockbroker are to research the markets, assess clients’ investment needs and guide them into making sound investments.
Stockbrokers work in a multitude of ways depending on their employment arrangements. Most stockbrokers work for large brokerage firms that specialize in servicing both private individuals and corporations. These brokerage firms provide advisory services to their clients who are interested in investing.
Sometimes these brokerage firms may also be market makers on the stock exchanges. Market makers facilitate the trading of securities by posting bids and offers on both sides of their book which means that they act as both a buyer and a seller of securities.
Stockbrokers can also work independently as brokers who are engaged directly by clients to buy or sell stocks for them. These brokers are responsible for ensuring that their clients receive a fair price for their investments and also help them in tracking the current financial market trends.
The following are the main three stockbrokers.
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1. Full-Service Stockbroker
A full-service stock broker gives advice and acts as a liaison between the client and the stock market. They can give recommendations on specific stocks, suitability for risk factors like age, and provide research. A full service broker works over the phone or online to help clients reach their goals.
Full-service stockbrokers are ideal for investors with significant resources to invest. These brokers conduct in-depth research on companies before recommending them, and provide guidance when investing their money. A full service broker is also the most expensive option.
2. Discount Stockbroker
A discount broker, as the name suggests, charges a lower fee for its services. A discount broker allows its clients to buy and sell from a list of pre-approved companies. While this form of brokerage does not offer advice, it is inexpensive because there are no extra fees involved. One can do research on their own or use an online brokerage company that provides the same service.
Discount brokers are best when one is starting out in the stock market but doesn’t have a large sum of money to invest. These brokers are inexpensive, but do not provide guidance or research other than what can be found on the internet. This sort of broker is also beneficial when one only trades stocks occasionally as their flat-rate structure makes it cost efficient.
3. Online Stockbroker
Online stockbrokers can be either full service or discount brokers. These companies offer their services over the internet and usually don’t have an office. They charge a flat fee for trades, instead of taking commission based on value like other brokerages. One set rate is charged with no hidden fees making them very cost efficient. Online brokerages often provide clients with research and recommendations in order to help them make a decision.
Online stock brokers offer a good middle ground between full service and discount brokers, as they offer guidance and research while not charging a high commission. A flat fee is charged on transactions which makes them economical for anyone who trades frequently.
Which Stock Broker to Choose for your TRade
For people with a larger sum of money to invest, full service brokers are likely the best option due to their expertise in researching companies and offering advice. A discount broker is recommended for investors who want to do their research on their own and don’t have a large sum of money to invest. Online brokers offer guidance from financial advisors over the internet while being cost efficient for anyone who trades frequently.
The best stock broker depends upon a person’s situation, but full service brokers are the most costly option and online brokers are likely the least expensive. Discount brokers can be cost efficient if one is willing to do their own research rather than rely on a broker’s advice.