A broker, or a brokerage house, is an intermediary that is authorized to sell and purchase securities and stocks on behalf of buyers and sellers. Brokers provide various investment services on behalf of their clients, usually on commission. Different brokers charge different fees for brokerage services, but they are usually dependent upon the concept of price per trade.
In order to become a stockbroker, an individual must pass the General Securities Representative Examination, also called the “Series 7 Exam.” They will then become authorized to trade stock on the stock exchange.
If you are a beginning investor, the first step to building your investment portfolio will be choosing a broker and opening a brokerage account. Of the types of services stockbrokers offer, they generally fall into one of the following three categories:
- Execution-only, in which the broker only executes the buyers instructions to buy or sell.
- Advisory dealing, in which the broker advises the client on what the best trades are, but leaves the decision up to the investor.
- Discretionary dealing, in which the investor empowers the stockbroker to make deals at the broker’s own discretion, with an understanding of the investor’s ultimate investment objectives.
Traditional brokerages generally engage in advisory dealing or in some cases, discretionary dealing on behalf of their clients. These types of brokers tend to have a one-on-one relationship with their clients, and charge higher fees for their services.
Discount brokerages, or online brokerages, tend to be execution-only and charge much lower fees for their services. Many investors today use discount brokerages to do their investment transactions.
Before you commit to opening an account with one brokerage house or another, you should do your research and compare the options available to you. You should also ask yourself what sort of benefits and services you are going to use, and how you are planning to invest. Choosing the right broker may be the best investment you ever made.