October 20, 2021
Brokers have a crucial role in the financial industry; the growth of the industry is calling for a large number of brokers, enticing young people to pursue it as a career. If you want to know more about brokers, differentiate among the types of brokers, learn what each of them does, and how to become one, you’re in the right place. Read on!
What Is a Broker?
A broker is an individual or company that executes financial trades on behalf of another. Brokers serve as intermediaries between the investor and a securities exchange. The security exchanges collaborate only with exchange members, so a broker is a necessity for individual investors or firms that aren’t members.
Brokers can trade across a variety of asset classes, including shares, stocks, bonds, insurance, forex, real estate, mortgages, and other assets such as art and antiquities.
A broker can operate individually with a licence to execute transactions or act as part of a brokerage firm, where they are compensated for their services.
The broker definition states that brokers are compensated for their services through commissions, fees, or they’re paid by the exchange. Brokers can also provide you with data on the products you’re interested in and give you personalised advice on whether to buy or sell; they have to be licenced to give advice and execute transactions. A broker will execute a transfer once the clients have given the green light and not a minute before, as they’re not allowed to conduct transactions on your behalf without consent.
|DID YOU KNOW? The etymology of the word ‘broker’ can be traced back to Middle English, stemming from the Anglo-Norman word ‘brocour’ denoting a retailer or pedlar.|
What Do Brokers Do?
Being a broker is no simple feat; brokers have many responsibilities and don’t have a lot of room for mistakes. If you want to hire a broker or become one, you need to know what to expect, so we listed all the broker’s duties in one place for easy access.
Market Research and Data Analysis
Brokers have to research the financial market every day and analyse the data they’ve gathered through the process. Based on this, they make trading decisions and decide on the trading volume on any given day.
Setting Up Client Accounts
The broker meaning becomes evident when it comes to setting up accounts for new clients. Anyone that wants to invest in the stock market can open an account and start an investment portfolio. This is where brokers come into play – they set up the account and explain to the new clients how the whole process works. Together, they decide on investment strategies that meet the client’s needs.
Providing Investment Advice
Whenever a new investment opportunity comes along, the broker must notify their clients and advise them as to whether it will be a profitable investment in the long run. Even though it is ultimately the decision of the investor, the broker has to provide honest information and unbiased advice.
When we define a broker, we have to mention the marketing aspect of the profession – brokers have to advertise their services to potential new clients through email or other communication channels. Marketing strategies can include market research summaries or newsletters.
|DID YOU KNOW? The first semi-organised stockbroking took place in Rome during Caesarian rule in the 2nd century BC. 600 years later, after the collapse of the Roman Empire, stockbroking disappeared from the financial scene for a few centuries.|
Types of Brokers
Brokering services can spread out over a wide number of asset classes, so it’s expected that different broker types are depending on the types of trade. Below are the most common broker types and their area of expertise.
What Is a Broker-Reseller?
A broker-reseller is an individual or brokerage firm that trades securities for itself and on behalf of its client base. This broker type acts as an agent when trading securities for clients, but when trading securities for themselves, the broker acts as the principal or dealer. What is a broker-dealer? Essentially, a broker-dealer is the same as a broker-reseller.
Regular Broker vs Broker-Reseller
This question often comes up, so here’s the difference between a regular broker and a broker-reseller: Broker-resellers route their trades through larger brokerage firms to get a more efficient trading execution, making the trading process slower than a regular broker. However, anyone can act as a broker-reseller, even individuals not yet qualified as regular brokers! All regular brokers have to be qualified and licenced to conduct trades.
What Is a Credit Broker?
Credit brokers are brokers that help people secure credit and get approved for various types of loans. They do this by comparing market offers and offering the client a company that is willing to give out a loan. All loans approved online (for example, payday loans) are conducted through a credit broker, so people are often unaware they have used a credit broker in the process of taking out a loan. Loans marketed in ads inviting people to take one out are also placed by credit brokers that facilitate the request to the lender.
What Is a Discount Broker?
For discount brokers, the brokerage meaning is determined by low commissions, which is due to these brokers not offering any additional services except trading. Although they usually offer access to many financial and banking products, mutual funds, and other services, they don’t offer advice or portfolio management. This is an excellent option for self-directed investors that want to save money on commissions – the more trades you conduct through a discount broker, the lower the fees.
What Is a Mortgage Broker?
A mortgage broker is an intermediary between mortgage lenders and mortgage borrowers who doesn’t use their funds to originate the mortgage. This type of broker helps borrowers connect with prospective lenders and find the best option according to their financial situation. The broker also gathers all necessary paperwork and passes it on for approval, which can save a significant amount of time and money. Mortgage brokers earn a commission either from the borrower or the lender and, in some cases, from both.
What Is a Financial Broker?
A financial broker can be an individual or a firm that serves as an intermediary between businesses and the funding they need. The broker brings the two parties together so they can agree on a loan amount. When both parties come to a mutual agreement, the broker receives a percentage of the agreed-upon loan amount in addition to any fees that might accrue during the process. Not only do these brokers serve as executors, but they also take on the role of advisors, providing investment and wealth management plans.
What Is an Insurance Broker?
An insurance broker represents the client’s needs in the search for the best insurance policy. Once the client finds the best policy, the broker lets the insurance company take over, since brokers can’t provide any form of insurance. The broker is paid a commission on the total cost of the insurance policy, but the good news is that it’s already built into the price. Insurance brokers sell various insurance types – health insurance, accident insurance, life insurance, homeowner insurance, and annuities.
What Is a Real Estate Broker?
What does a broker do in real estate? The answer is simple. Real estate brokers work as real estate agents – they facilitate the sale of properties. However, what differentiates brokers from agents is the licence – brokers continue their education and obtain a licence, which enables them to open their brokerage firms and hire other real estate agents. A real estate broker also earns higher commissions than a real estate agent, since they’re licenced and have more knowledge of the trade.
What Is a Charter Broker?
A charter broker is, in most cases, a company that provides charter jet services by leasing a private aircraft. These brokers serve as intermediaries between individuals in need of charter services and the aircraft’s operator or owner.
|DID YOU KNOW? The most contemporary brokers are trading apps. Numerous available apps let you trade with stocks in the UK directly from the stock exchange. The main upside to these apps is that they allow you to trade for very low fees.|
|The brokering meaning says that brokering is mediation between an investor and a securities exchange.|
|A broker can be an individual or a brokerage firm.|
|Brokers are in charge of the trading volume and the trading execution.|
|Many different broker types specialise in different areas of trading.|
Broker vs Stockbroker: What Is the Difference?
Although the terms ‘broker’ and ‘stockbroker’ are often used synonymously, there is a difference between the two. Let’s review what each term means.
What’s a Broker?
Brokers are intermediaries that buy and sell various assets on behalf of their clients. A broker can be an individual that executes trades on the stock market when their client approves the transaction – or they can be brokerage firms that work on a larger scale, executing larger trades with more substantial sums. Regardless of whether it’s an individual or a firm, brokers are always exchange members, which allows them to execute the trades. Besides buying and selling, the broker can take on the role of an advisor or an agent in negotiations.
What’s a Stockbroker?
A stockbroker, or investment broker, is an individual that executes the process of selling and buying shares. Since individual investors can’t trade on the stock exchange, the trades are taken over by a stock exchange broker. Stockbrokers handle transactions and focus on maintaining accounts for individuals and companies. In essence, these brokers need to obtain buy and sell orders and execute the transactions. Stockbrokers work individually or in collaboration with a brokerage firm.
What’s the Difference?
To summarise, there are two glaring differences between a broker and a stockbroker.
Brokers are either individuals or firms, while stockbrokers are always individuals that might collaborate with a brokerage firm.
If you’re still asking what is a broker and how are they different from a stockbroker, keep in mind that a broker can also serve as an advisor or a negotiator, while a stockbroker deals exclusively with stock trading.
|DID YOU KNOW? The London Stock Exchange traces its roots back to a London coffee house in 1698. A broker named John Castaign first began issuing prices for various stocks and commodities at Jonathan’s Coffee House.|
Broker vs Trader
Brokers and traders both deal with securities, but there are some differences. Let’s see what each of them entails.
What Are Traders?
Traders usually work for large investment firms, banks, or exchanges, and they trade securities on behalf of the firm that’s hired them. A trader is assigned certain accounts and is responsible for all investment decisions regarding the investment account. A trader executes trades based on the client’s wishes or is tasked with creating an investment strategy best suited for the client’s needs. Traders also work in different markets than brokers – they deal with stocks, derivatives, debt, commodities, Forex trading, and they might specialise in only one asset class or investment type.
What Are Brokers?
Brokers can act on their behalf or the behalf of a brokerage firm while obtaining a roster of retail customers, i.e., regular individual customers. A broker has direct contact with their client and might serve as a financial advisor, shaping retirement plans and diversifying investment portfolios with managed investment accounts. Portfolio diversification is easier for brokers since they deal with a wide range of assets – bonds, equities, mutual funds, and other retail products.
|DID YOU KNOW? The London Stock Exchange has been operating even during the most turbulent times in British history. During WWII, the exchange was closed only for one day – when it was hit by a rocket.|
How to Become a Stockbroker in the UK
There are no clearly delineated requirements about becoming a stockbroker in the UK, but most employers will expect you to have a certain set of qualifications before giving you a job. Here’s a list of some of the most commonly listed qualifications for becoming a stockbroker:
- Have a degree – Preferred subjects are business, economics, finances, and accountancy.
- Get a course certification – Enrolling and obtaining a certificate from a stock trading course will get you a long way.
- Enter a training programme – Many employers require experience, and training programmes are great places to acquire it.
- Obtain a licence – Before you start working as a stockbroker, you need to obtain a licence from the Financial Conduct Authority.
If you want to know how to become a broker in the UK, remember that brokerage firms will make you attend seminars and workshops covering trade-related issues, or require you to obtain an apprenticeship before giving you any real assignments.
|DID YOU KNOW? The London Stock Exchange is not the only exchange in the UK – in 1995, the Alternative Investment Market (AIM) was launched, allowing investors to buy stocks in smaller businesses with large potential growth.|
Once you learn what is a broker and what their duties include, you can make an informed decision when choosing an individual or a firm to help you make the right financial decisions. Brokers deal with various assets and types of investments, so you’re guaranteed to discover one that will cater to your investment needs. If you want to become a broker, there are plenty of opportunities to choose from.
Brokers execute trades at the orders of their clients, provide investors with research data and market information, construct investment portfolios, and make investment plans. They can also offer personalised advice based on the client’s investment wishes.
You need to hire a broker to execute the trades on the stock market on your behalf. Only licenced individuals can trade on the exchange.
When choosing a broker, make sure they are legit by looking them up in the Financial Conduct Authority register. There you can find details on all licenced brokers and brokerages – then you can safely say you know what is a broker, and a legit one at that!