What is a 'Stockbroker'
A stockbroker, also called a Registered Representative, investment advisor or simply, broker, is a professional individual who executes buy and sell orders for stocks and other securities through a stock market, or over the counter, for a fee or commission. Stockbrokers are usually associated with a brokerage firm and handle transactions for retail and institutional customers. Brokerage firms and broker-dealers are also often referred to as stockbrokers.
BREAKING DOWN 'Stockbroker'
It used to be that only the wealthy could afford hiring a broker to have access to the stock market. However, advances in technology, such as the Internet, gave rise to discount brokers that allowed small investors to trade the stock markets at a small fee. Because of discount brokers, nearly anybody can afford to invest in the stock market, even individuals who are based overseas. One downside to this is the lack of personalized service only a dedicated stockbroker can offer.
A bachelor's degree in finance or business administration is typically required for stockbrokers. A deep understanding of financial laws and regulations, accounting methods, principles of economics and currency, financial planning and financial forecasting are necessary to ensure success in the field.
Various Country Licensing Requirements
Different countries have different requirements for stockbrokers. In Canada, would-be stockbrokers should be currently employed by a brokerage firm and are required to complete the Canadian Securities Course (CSC), Conduct and Practices Handbook (CPH) and the 90-day Investment Advisor Training Program (IATP). In Hong Kong, applicants have to be working for a licensed brokerage firm and pass three exams with the Hong Kong Securities Institute (HKSI). However, passing all three exams does not guarantee a license as it still has to be approved by the financial regulatory body.
In Singapore, becoming a trading representative requires passing four exams, Modules 1A, 5, 6 and 6A, administered by the Institute of Banking and Finance. A license is applied through the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX). In the United Kingdom, stockbroking is heavily regulated and brokers must achieve qualifications from the Financial Conduct Authority (FCA). The qualifications required depend on the duties required of the broker as well as his employer. In the United States, the designation "Registered Representative" is obtained by passing the General Securities Representative Exam, also known as the "Series 7 exam," offered by the Financial Industry Regulatory Authority (FINRA). Applicants must also be employed with a registered brokerage firm.
For other uses, see Broker (disambiguation).
For the not-for-profit organization "the Brokerage", see The Brokerage Citylink.
A broker is an individual person who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be confused with that of an agent—one who acts on behalf of a principal party in a deal.
A broker is an independent party, whose services are used extensively in some industries. A broker's prime responsibility is to bring sellers and buyers together and thus a broker is the third-person facilitator between a buyer and a seller. An example would be a real estate broker who facilitates the sale of a property.
Brokers also can furnish market information regarding prices, products, and market conditions. Brokers may represent either the seller or the buyer but not both at the same time. An example would be a stockbroker, who makes the sale or purchase of securities on behalf of his client. Brokers play a huge role in the sale of stocks, bonds, and other financial services.
There are advantages to using a broker. First, they know their market and have already established relations with prospective accounts. Brokers have the tools and resources to reach the largest possible base of buyers. They then screen these potential buyers for revenue that would support the potential acquisition. An individual producer, on the other hand, especially one new in the market, probably will not have the same access to customers as a broker. Another benefit of using a broker is cost—they might be cheaper in smaller markets, with smaller accounts, or with a limited line of products.
Before hiring a broker, it may be considered prudent to research the requirements relating to someone using the title. Some titles, such as real estate brokers, often have strict state requirements for using the term, while others, such as aircraft brokers, typically have no formal licensing or training requirements.
The word "broker" derives from Old Frenchbroceur "small trader", of uncertain origin, but possibly from Old French brocheor meaning "wine retailer", which comes from the verb brochier, or "to broach (a keg)".
Types of brokers
Media related to Brokers at Wikimedia Commons
- ^ abcSpiro, Rosann L., William J. Stanton, and Gregory A. Rich. Management of a Sales Force. 12th ed. Boston: McGraw-Hill/Irwin, 2003
- ^Harper, Douglas. "broker". Online Etymology Dictionary. Retrieved 2010-04-10.