Broker Definition & Meaning

You have most probably come across the term “broker” already, be it in the context of finance or other markets. When financial markets are volatile, brokerage firms are typically in the news. If you’ve ever invested in stocks or shares, you’ve most likely done it through the services of a broker. They are indeed very important figures in the financial system as they act as a facilitator for buyers and sellers, increasing market efficiency and liquidity.

Brokers are persons or companies who serve as an intermediary for a securities exchange and an investor. They have such a responsibility to their clients to acquire the best deal possible for the assets they are trading. Independent traders and investors seek the expertise of exchange members since securities exchanges exclusively accept orders from persons or organizations that are members of the exchange. This is applicable in a range of asset classes, including forex, real estate, stocks, and insurance.

Brokers can earn a variety of professional designations based on the type of license they possess, the financial instruments they trade, and the services they provide. They shall register with the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization for broker-dealers. Regardless of whether they are a full-service broker or an execution-only broker, some brokers would offer you market data and advice on the products you want to purchase or sell.

A commission is usually charged by a broker for executing an order. A broker’s or brokerage firm’s fee is normally commission-based and based on a percentage of the customer’s sale price or purchase price, while some brokers are paid a fixed price or a mixture of the two.

A forex broker, a stockbroker, a discount broker, and a full-service broker are the four major types of brokers. Even though they all function as a channel for both you and another party, they work in different ways.

A forex broker, often known as a retail forex broker, acts on your behalf to buy and sell currencies. While forex brokers aim to keep their cost as low as possible in order to remain competitive in the market, you will still be charged some fees while trading with them, along with a spread.

A stockbroker often referred to as an investment broker, is responsible for managing and executing the buying and selling of stocks. You’d need a stockbroker since individual investors can’t buy shares directly from the stock market. The broker will buy and sell any stocks that you want to invest in on your behalf.

Discount brokers take a cheaper commission since they don’t provide any advice or value-adds to your trade, such as research and planning; instead, they simply execute. Basically, the lesser the fee, the more trades they execute for clients. You would have to handle your portfolio yourself if you pick this type of broker.

Full-service brokers, also known as financial advisers, provide a range of services, including retirement and investment planning, tax counseling, and market research. They typically charge a bigger fee than some other brokers.