All You Need to Know About Brokers

4 Mins read

A lot of us had been laid off from our jobs or had our salaries cut off. Some young adults, who had been compromised from their future, are now looking for opportunities on the internet. Though a lot of opportunities have been closed from our paths, there are still a lot of them that we haven’t yet considered and are still available. Here we’ll learn about brokerage.

What is a Broker?      

A broker, in short definition, is someone who enters arrangements or negotiates for other people interested in buying and selling goods or assets. Brokers are independent players engaged in financial or non-financial over-the-counter (OTC) markets. Their roles are mainly to provide a contact point for institutional clients seeking to buy or sell.

A broker acts purely as an intermediary, taking no positions or dealing risks as bound by regulations. Serving this role gives the broker continuous contact with major financial players which includes banks, multinational private companies, insurance companies, etc. Their chief functions are:

  • To ensure market liquidity and rapid response to clients’ requirements,
  • To honor and protect the confidentiality of each clients’ transactions.

A broker receives a commission or fee for every client transaction corresponding to all the services he/she provided. A broker earns through trading commissions. Different pricing models depends on the broker:

  • Trading commission
  • Spread
  • Additional interest income

The professionalism of a broker must therefore be ensured to avoid scams, waste of resources, and to maximize the profits. Performing these tasks properly would require the following expertise,

  • Sufficient knowledge of financial markets,
  • A dynamic understanding of the clients’ needs and objectives,
  • Providing superior quality, high value-added service.

Comparison of Different Types of Brokers

After knowing what a broker is, let us now look at what types are present on the market today. Contrasting their definitions and purposes will help you better pick the right one for your needs. 

There are four main types of brokers – a stockbroker, forex broker, full-service broker, and discount broker. While they all act as a facilitator between two parties, most of the companies or people providing brokerage are not limited to financial products but offer a wide range of options for investment.

  1. Stock Broker

Stocks refer to all the shares by which the ownership of a corporation or company is divided into. A stockbroker is a specialist that buys and sells “shares” or “stock” for you. They can be referred to as an investment advisor or a registered representative. Individual investors are not allowed to buy shares directly from the stock market; so if you’re trying to invest or sell stocks, you need a stockbroker.

Most stockbrokers are contracted by the brokerage firm. The firm allocates each broker to the individual or institutional customer transactions. Stockbrokers are often paid through the company salary or via commission basis; with compensation methods varying concerning the employer.

  1. Forex Broker

If you’re trying to enter the foreign exchange world, you need a Forex broker. Foreign exchange involves trading currencies through a global decentralized market or via OTC transactions. Also known as a retail forex broker, this type is seen on deals with currencies. 

Forex brokers in South Africa can provide you with 24-hour access to the market and they can compare currency pairs on the world. Forex brokers often minimize their commission cost to stay competitive, but there are fixed fees when trading with them, including a spread. 

  1. Full-Service Broker

As the name suggests, full-service brokers, (also known as financial advisers), offer almost all kinds of services, including research, tax planning, and even retirement plans. Full-service brokers are therefore paid with higher commissions compared to other types of brokers. 

Since this type is capable of handling unique trade requests, clients find their high pay worth it. Like the other types of brokers, they also execute buy and sell transactions and provide investment advice.

  1. Discount Broker

A discount broker is a broker dealing with securities for the client, without value adds or services from other brokers like investment advice or planning; which allows them to charge a lower commission. Another perk is that the more trades provide, the lower the cost. The catch, however, is that this type of broker will make you manage your portfolio yourself.

How to Know If You’re Talking to a Reliable Broker? 

Brokerage services will help you make a profitable investment by aligning them with your goals, needs, and style. When you’re a new investor or trying to be a legitimate broker, selecting the most fitted service or customer can draw the line between a new income flow and a big mistake. Professionals from suggest that double-checking the background of your brokers will help you know if they are reliable ones. In line with that, here are also a few tips for you in signing with a broker:

  • Beware of cold contacts
  • Talk regularly to your broker
  • Research about the broker or firm
  • Check if the broker has  authorization and license up to date
  • Verify the statements that your broker hands you regularly.
  • Whenever in doubt or suspicious, complain to your broker or the authorities

Brokers can obtain a license to operate from regulating commissions. In Germany, for example, they have the Federal Financial Supervisory Authority (BaFin). In the USA, the broker would need to apply to the Financial Industry Regulatory Authority (FINRA).  You can ask people in your locality if you do not know which office provides this permit. Making sure that you’re dealing with a trustworthy agency that will give you security and a guaranteed smooth process of investing. 

Brokers make money by charging fees from their trade so don’t be surprised if a legit broker asks you for payment. However, you must avoid paying full before they provide the service you require.

We have given you as much insight as to why there are brokers. Some brokers do dubious business practices causing the entire practice to be surrounded with suspicion and a bad reputation. Just read a lot of reviews to assist you in choosing a good provider.

It is a legitimate and lucrative business. Highly competitive pressure is present in this industry, so if you’re trying to become a broker, note that a bad broker will get caught on the first contract. If you’re trying to hire one, there are many types of brokers and so it’s up to you to find the right choice.

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