Stock broking is a service which gives retail and institutional investors the opportunity to trade shares. This service is carried out by people known as stock brokers. Stock brokers are regulated professional individuals associated with brokerage firms. This person ensures they meet the client’s interest at any given time. They buy and sell stock and other securities, and they also handle the transaction for retail clients through stock exchange markets in return for a fee or commission.
Stock brokers are also known as registered representatives or investment advisors. Stockbrokers are required to be finance or business administration degree holders. They are obliged to have a thorough understanding of financial laws and regulations, accounting methods, financial planning, principles of economic and financial forecasting for success in the stock broking field.
On-job training programs are available for aspiring stockbrokers that allow students to gain practical experience required in the stockbroking sector.
In recent years, the stockbroking market was mainly a realm of the rich because they could afford to pay the commissions for stock brokers in the field. However, technological advances in the internet lead to discount brokers who have in turn allowed small investors to trade in the stock market for a small fee.
Discount brokers are stockbrokers who carry out buy and sell orders at a reduced commission as compared to full-service agents, but they do not provide any investment advice. They typically make order execution for their clients, and their reduced price is because they spend money closing deals with generous individuals. Their businesses operate online.
The emergence of discount brokers allowed more people to start investing in the stock broking sector. One disadvantage of discount brokers is the lack of personalised services that a dedicated stock broker offers.
Some Services Provided by Stock Brokers
- Complete transactions and orders on behalf of the investor but not offering advice
- Can offer tips on where to trade, but only purchase orders the investor submits
- Sell on behalf of the investor and execute a trade without the investor’s input
- Provide tax tips
- Retirement planning tips
These services come at a price as full-time brokers are more expensive than discount brokers, but they are available for those people who do not have a chance to stay updated with complicated issues like tax and estate planning. They also offer services like trade facilitation, management of portfolios, financial planning and wealth management.
Despite stock brokers providing financial advice, they are different from financial advisors. Stock brokers are more involved in providing security products and transaction-based services, but financial advisors are more geared to covering a broader range of services, e.g., financial planning, budgeting and insurance products.
Benefits of Full-Service Brokerage Firms
Some of the benefits of full-service brokerage firms include that they are big businesses that have research departments, where analysts provide detailed reports and recommendations for their clients. They also have investment banking divisions that provide certain services to accredited customers who will have access to exclusive financial products like initial public offerings, senior notes, limited partnerships and various exotic and alternate investment opportunities.
Full-service brokerage firms also have their in-house line products such as mutual funds, portfolio management, insurance loan services and exchange traded funds. They also have a physical office location for their clients to visit for business. Full-service brokers are expensive. Investors pay this extra cost for financial investment advice and for planning their finances.
Discount Brokerage Firms
Discount brokers are useful for those investors and traders who actively trade in the market on a frequent basis. The lower commissions offered by these operators do not eat too much into their profits hence this enables them to trade on smaller movements in the market. They provide and maintain their clients’ accounts. The services offered by discount brokers are for those investors that are self-directed and do not need advice. Some stock broking firms include CMC markets, share builder, fidelity and trade king.