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Introduction To Stockbroking

stockbrokingA stock broker is an up to speed individual who executes buys and sells orders for shares and other securities through a share market or over the counter for a certain amount of money. Stock Broking gives the trader an opportunity to trade shares, and this is dependent on where they can find the best prices and liquidity. The majority of stock brokers usually work under a stock broking company. One of the biggest stockbroking company is CMC Markets. Stockbrokers also work as account managers, fund managers and financial consultants

The brokers trade shares on behalf of their customers, but this is affected by the kind of statement that his client has. The client may have an execution-only account; this means that the stock broker can only sell assets if his client has approved the sale of those shares. Other accounts used by traders include the advisory account and a discretionary account. If the customer uses an advisory account, the stock broker can only advise the client on how to sell his assets. If the customer uses a discretionary account, the stockbroker has some leeway on selling assets based on a prearranged deal with his client. Some of the functions of these stock broking firms include:

  • searching out buyers if their customers wish to sell
  • relocating sellers when their customers want to buy
  • execute transactions as per the client’s instructions

Many brokerage firms specialise in making markets in individual securities, where the brokerage firm will sell the security to its customers at the asking price and would not charge a commission for handling the transaction. The stock brokers profit from the difference in which he buys the shares for his account and sells them to his customers. It is known as the spread, and it is the compensation for making a market in that security. Some of the benefits of full-service brokerage firms are, the big companies have research departments in which analysts who provide detailed reports and recommendations for their clients.

They also have investment banking divisions that provide certain services to their customers who will have access to exclusive financial products like initial public offerings (IPOs), various exotic and alternate investment opportunities. Full-time brokerage firms also have their in-house lines products such as mutual funds, portfolio management, insurance loan services and exchange traded funds.

Some other services that can be offered by the stockbroker include, advising the client on the different companies and analyse the stocks. It will help the customer to know when the prices of stocks will rise or drop hence identify the right time to sell the assets and make a profit or hold onto the shares if the stockbroker believes that the stock prices will rise. The brokers are required by law to disclose all information related to any investment recommendation it is important to research on the stockbroker one hires before investing his money as misleading information can lead to losses for the client. The stock broker also provides tax tips and retirement planning tips, monitoring the client’s investments, and consult investment analysts for ideas on the stocks.

Despite there being no set qualifications, stockbrokers are required to be degree holders or better, and the stock brokers have an obligation to be registered with relevant licensing authorities. Stock broking calls for an in-depth understanding of the financial market and economics and stock brokers have a duty to be fast thinkers, and they should not be afraid to take risks if the risks are manageable. The brokerage firm cannot be as both the broker and the dealer in the same transaction; this is due to conflict of interest, or a double interest would emerge. It is a requirement that all securities listed on an exchange should trade on the floor by the stock brokers and they cannot extend off the floor of that exchange. As much as sometimes the stock brokers provide advice on finances, they are distinct to financial advisors.

Financial advisors are usually directed towards covering an extensive range of services such as financial planning,insurance products and budgeting, on the other hand, stock broking is involved in offering security commodities and purchasing based services.


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