A stock broker is a licensed agent that buys and sells stock on behalf of an investor. In order to trade stocks on a stock exchange, the broker has to be a member of the exchange. Stock brokers are qualified and regulated professionals who buy and sell shares and other securities through market makers on behalf of investors. In order to become a stock broker in the United States, a person must pass exams such as the General Securities Representative Exam, also called the “series 7 exam”. Also, most brokers have a background in business or finance, with a Bachelors or Masters Degree.
Types of Stock Brokers
There are three types of brokers. Full service, discount and online brokers.
Full Service Brokers
Full service brokers, in addition to buying and selling stocks for their clients, also provide them with research and investment advice. Most full service brokers have dedicated research departments that produce piles of research data on the thousands of publicly traded corporations. Clients get access to this exclusive research and also get to receive personalized investment advice and management from the brokers’ investment professionals. Also, full service brokers usually have a nationwide network of offices that allow them to personally attend to the concerns of their clients. These services make full service brokers appealing to novice investors. In exchange for these services, full service brokers charge a much higher commission than discount or online brokers. Most accept orders by phone or the internet.
Discount brokers in contrast, provide very little research and almost no investment advice or management. As a result, their commissions are much lower than those charged by full service brokers. Discount brokers are generally preferred by experienced investors who prefer to do their own research. Most discount brokers allow for orders to be called in by phone, and most have websites that allow you to buy stocks online. A good number also have a network of offices that provide services and support.
Since the advent of the internet age, a new kind of broker has appeared. Online brokers, much like discount brokers, provide no investment management or advice, and usually only provide minimal third party research. Their appeal is the very low commission fees that they charge. Most online brokers however do not have physical offices and do not accept trades over the phone. That said, if you want to find the best broker for day trading, you probably won’t be placing trades over the phone.
Stock Broker Services
Stock brokers perform three types of services: execution only, advisory dealing, and discretionary dealing. Execution-only, or discount brokers, just carries out the client’s instructions to buy or sell, nothing more. Advisory and discretion dealing is done by full service brokers who do research and provide advice. In advisory dealing, the broker acts as an advisor and advises the client on which shares to buy and sell, but leaves the decision making up to the investor. In discretionary dealing, the stock broker knows the client’s investment objectives and then makes the decisions on that client’s behalf.
Concerns investors should pay attention to when selecting a broker are, the minimum balance required to open an account, the quality of customer service, the amount of time it takes to execute an order and any associated fees that might be attached to stock orders.