Brokerage houses, also known as brokerage firms or just brokers, are essentially companies that are authorized to sell and purchase securities and stocks. They are licensed and act as intermediaries between sellers and buyers of stocks and securities, and they meeting the demands of their clients with respect to investment strategies. The transactions of brokerage houses are carried on by people call brokers, who provide investment services and are employed by the brokerage house.
Examples of brokerage houses would be companies such as Merrill Lynch, Bear Stearns, Morgan Stanley, and Goldman Sachs. These brokerage firms act on commission on behalf of their clients. Different firms charge different fees for brokerage services, but they are usually dependent upon the concept of price per trade. For example, a higher charging firm might charge a higher commission for more personalized services or faster service, whereas a firm with lesser fees might turn out to be slower in the execution of its brokerage services when compared to a firm with higher commissions.
In order to become a stockbroker, a candidate must pass through an exam called the General Securities Representative Examination, which is also known as the “Series 7 exam.” The general public cannot simply walk into the New York Stock Exchange and trade a stock. Therefore, brokers and brokerage houses play a crucial role in the selling and purchasing of stock for their clients.
The types of stock brokerage services provided by brokerage houses can be divided into three broad types:
• Execution-only. This means that the broker only executes the investor’s instructions to buy or sell.
• Advisory dealing. In this case, the broker can advise the client to buy or sell, but the investor gets the final decision.
• Discretionary dealing. The stockbroker acts on the investor’s behalf with a general understanding of the client’s investment objectives.
When choosing a broker, it’s always important to thoroughly investigate the rates on commissions and make sure you find a trustworthy brokerage firm that can help you meet your investment goals.