Broker

Who is a Broker?

A broker is an individual or firm that’s involved in the buying or selling of assets for investors. These can include stocks (equities), bonds, exchange-traded funds (ETF), mutual funds, and other products.

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Techopedia Explains the Broker Meaning

Broker

The most accurate broker definition is someone who is authorized to act as an intermediary between investors and exchanges. Their job is to buy and sell assets – often stocks – on behalf of their clients. However, some of these brokers will also give investment advice as part of their service.

In addition, there are discount brokers, including online platforms, that enable investors to complete financial trades without such advice. These will generally be considerably cheaper.

What Does a Broker Do?

It depends on the services they offer. Typically, a broker will carry out someone’s instructions to either buy or sell certain investments. However, some brokers can make recommendations, suggest investment strategies, and even monitor the performances of assets.

These providers are often referred to as full-service brokers and are favored by investors wanting more advice and support with their financial needs. However, the more services required, the more you’ll pay.

How Does a Broker Make Money?

Brokers are typically paid a commission every time an asset is bought or sold, according to the US Securities & Exchange Commission. “You may pay other fees and costs related to servicing your account and the investments that you buy, sell or hold,” it stated.

This can be a lucrative industry. According to the US Bureau of Labour Statistics, the median salary for a broker in the US stood at $67,480 in 2022. This equated to $32.44 per hour.

How Does a Broker Make Money?
Source: US Bureau of Labour Statistics

In the UK, meanwhile, average annual salaries range from £24,000 ($30,244) for someone just starting out in the industry to £125,000 ($157,525) for an experienced practitioner, according to the National Careers Service.

Do You Need a Broker?

The answer is yes – and no. You don’t need an advice-giving broker who will charge you a fee for accessing their services. However, you will require a brokerage system of some description to complete investment transactions.

The final decision will depend on your investment experience, knowledge, and confidence, as well as your trading requirements.

How to Find a Broker

There is no shortage of investment brokerages, but how do you find the best brokers for your needs? There are a few steps to consider.

Decide What You Want From a Broker

What do you need from your broker? Are you looking to trade particular assets? Is your aim to trade the odd stock, or are you looking for more of an advice-led service? Put together a list of potential brokers that can cope with these demands.

Make a Shortlist

The next step is finding out how much these services will cost – and compare rival brokers. Are there limitations with certain providers? Research to see what existing users have to say about the services of the various brokers on your list.

Background Checks

You need background checks on your shortlist. It’s very simple to set up a professional-looking website and easy for would-be investors to fall victim to fraudsters. Check they are licensed, depending on where you live. For example, in the US, you can perform a quick check on investor.gov.

Discount vs. Full-Service Brokers

There are different types of brokers. Choosing which is most suitable will depend on your experience and investment needs. Here is our table showing the benefits of both full-service and discount brokers.

Full-service brokers

  • Access to advice
  • Personalized planning
  • Benefit from broader financial advice
  • The comfort of being with a professional
  • Face-to-face and telephone discussions

Discount brokers

  • More affordable option
  • Low commission rates on stock trades
  • Simplified access to investing via platforms
  • Quick and easy to find a broker
  • Can open a variety of accounts

Real Estate Brokers

These are different from investment brokers. A real estate broker is a licensed professional who acts as an intermediary in the buying, selling, and renting of houses, buildings, and offices.

These individuals, who can work independently and may even employ a team of real estate agents, are responsible for bringing together buyers and sellers. They will usually be paid a commission on the property’s sale price.

Broker Examples

Fidelity was the largest stock brokerage firm in the US, with around $10.4trn in assets under management, as of 2021, according to Statista.

Vanguard and Charles Schwab are other large, popular brokerages, with trillions of dollars in assets under management and clients across the world.

There are also numerous online brokers, such as Robinhood and Webull, that can enable you to start trading stocks quickly via the Internet.

Broker Examples
Source: Statista

Best Online Brokers

If you’ve decided to opt for an online provider, the next question you face is: which are the best brokers? There are hundreds available, so you’ll need to choose carefully.

Several factors will need to be considered:

  • Does the online broker meet your needs? This will be based on what assets you’re looking to trade and your investment experience.
  • The amount of educational information available on the site. Some platforms enable you to build up your knowledge before starting to trade.
  • The costs involved. Does the platform have minimum deposit requirements? In addition, what are the fees it will charge for the services offered?
  • Will you be trading from your desktop or a mobile phone? If it’s the latter, then check to see if their mobile app is effective.

Regulation of Brokers

The regulation of brokers will depend on where they’re based. In the UK, for example, nearly all such activities must be authorized by the Financial Conduct Authority. It has registers for firms and individuals, as well as what they are allowed to offer.

In the US, brokers must usually register with the Securities and Exchange Commission and become members of the Financial Industry Regulatory Authority (FINRA). This is a self-regulatory organization for the brokerage industry. To check if a firm is regulated in the US, you can visit the FINRA website.

The Bottom Line

Most people will need a broker – or at least access to brokerage services – if they want to buy or sell financial assets.

However, the extent of services offered will vary between brokers. Therefore, your final decision will be based on your requirements. If you are new to investing or feel you require support, then it might be worth opting for a full-service broker. However, if you’re experienced and just want to trade stocks, then consider either a discount broker or even a simple online platform.

Remember that the golden rules still apply: Only invest what you can afford to lose, and make sure that any broker you choose is regulated to offer the services provided.

FAQs

Who is a broker in simple terms?

What is an example of a broker?

Why do I need a broker?

How do I become a broker?

References

  1. Broker (Investor.gov)
  2. Securities, Commodities, and Financial Services Sales Agents (U.S. Bureau of Labor Statistics)
  3. Stockbroker (National Careers Service)
  4. Investor Bulletin: How to Select an Investment Professional (Investor.gov)
  5. Assets under management of the largest U.S. stock brokers 2021 (Statista)
  6. The Financial Services Register (Financial Services Register | FCA)
  7. Ask and Check (Financial Industry Regulatory Authority)
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Financial Journalist

Rob is a seasoned journalist with over three decades of experience spanning across business and finance journalism. Before embarking on a freelance career in 2002, he contributed his expertise to the business desks of notable publications such as the The Guardian, Yorkshire Post, Sunday Business (now Business Post), and Sunday Express. Throughout his freelance journey, Rob has been a regular contributor to a wide range of national newspapers, consumer magazines, trade publications, and websites. His work has appeared in titles such as The Independent, Citywire, Daily Express, FT Adviser, and Sunday Telegraph, covering an array of subjects from market trends…