A common term you may come across in the financial landscape is broker. Brokers are financial intermediaries between you and the markets. Your trades pass through them for execution in different exchanges. Read on for more on their role.
This article at a glance:
- Brokers are financial intermediaries that pass your trading orders to financial exchanges.
- Apart from order fulfillment, they may also offer trading solutions and services.
- They may charge different types of fees, based on the services they provide you.
What is a broker?
Brokers are financial intermediaries through whom you can buy and sell financial instruments. In this case, you’re not buying from or selling to them. Rather, your trades pass to respective exchanges through these brokers. For example, when buying stocks, brokers can connect you to a stock exchange, such as the New York Stock Exchange. The same works for any other asset that you can trade with the broker.
What do brokers do?
Trading brokers receive your trading orders, and place them in the respective instrument exchanges for execution (read more about the trade life cycle). In return, they charge certain commissions, spreads and other fees for their services.
Brokers typically offer simple and easy-to-navigate platforms, advanced trading tools, and possibly trading support as well. They may cater to individual clients, retail traders, or both.
Some classes of brokers may trade on behalf of their clients, and others also provide trading advice. Further, brokers often build trading solutions to support their clients’ trading activities.
For institutional clients, brokers also provide liquidity services and trading technology to support their large-scale trading activities.
Types of brokers
Trading brokers can be broadly classified as:
A full-service broker offers end-to-end trading services, including financial advisory. Full-service brokers trade on behalf of their clients and also provide clients with portfolio analysis, asset planning, research, and other tailored support solutions. Because a full-service broker offers these services, their commission is usually higher.
Discount brokers execute trades on your behalf, but do not provide financial advice or personal consultations. At the same time, they may provide a suite of trading-related solutions to support their clients in the trading journey. These are well-suited for traders who prefer the benefits of autonomy, and lower commissions and fees.
Deep discount brokers
Deep discount brokers cater to traders who need little else apart from the lowest possible charges. Unlike full-service or discount brokers, they focus solely on trade execution and do not provide as many support services.
How to choose an online broker
There are several factors to consider when choosing a broker, including their pricing and features. Start by evaluating your trading goals and objectives, to understand what your requirements are. This includes what kind of product you’re looking for, from stocks and forex, to derivative products such as Contracts for Difference (CFDs).
Next, compare different brokers in terms of their charges, platform features, market access, support services and trading-related tools. What kind of commissions are you comfortable to pay? Do you want to trade multiple instruments? Are you looking for advanced charting options? Ask yourself these questions as you browse through the offerings of different brokers.
Remember to research minimum balances, account fees, regulatory licenses and platform reliability. As the demand for trading solutions ramps up, and more entrants make their way into this space, picking a safe, experienced and trusted broker to work with in your trading journey.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.