What is a Stock Broker?
- 6 min read
A stockbroker is a common term that you have heard as an investor. They help you invest in the securities market. You can think of them as a middleman between the stock exchanges and you to buy and sell securities or assets.
They are financial experts or professionals who you trade in the securities market, as you cannot directly approach a stock exchange for trades or investments.
They help you carry out successful trades, and depending on the types, they facilitate expert advice, a trading platform, etc. Read this blog to learn about such brokers in detail.
Who is a Stock Broker?
A stockbroker is a financial expert and a market specialist who helps you purchase or sell securities traded in the stock market. They can be independent entities or might work for a brokerage firm.
Their main role is to assess your investment and risk appetite, facilitate expert advice, and carry out trades on your behalf. To become a valid broker, they must be registered with the exchanges, such as the NSE or BSE.
Upon executing a successful trade, depending on their brokerage type, they charge a certain amount as a brokerage, mark-up or commission.
Key Functions of Stock Brokers
To understand what does stockbroker means, you must take a look at the functions of such brokers. Here is a detailed breakdown of the functions of such a broker in the securities market:
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Seamless Portfolio Management
As an investor, when you are investing or trading in securities through a stockbroker, they can help you with portfolio management. They manage your investment portfolio with expertise and keep you updated about your portfolio. If you have questions or want to diversify your portfolio, they give you expert advice and solutions.
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Investment Assistance
Such brokers can help you with investment insights regarding purchases and sales of securities. As they know the securities market in and out, they can tell you when to purchase or sell a certain stock or securities to gain an optimised return and avert risks.
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Record Keeping
Since such brokers manage your investment activities on your behalf, they also tackle any associated paperwork. They help investors like you with record-keeping and maintain track of investment-related transactions, settlements, and more.
Different Types of Stock Brokers
Now that you have the answer to what is the meaning of stockbroker, let us explore the types of stockbrokers in the securities market:
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Full-Service Brokers
Full-service brokers or traditional brokers are providers of a full stack of investment services for you. They facilitate trading services, along with advisories, market insights, reports and more. Due to a higher range of services, brokerage fees of such brokers are generally higher, and they charge a certain percentage of commissions on the entire amount of a trade.
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Discount Brokers
Discount brokers’ services are more affordable than traditional counterparts and suitable for experienced investors. They rely on technologies and provide you with an online trading platform for seamless investments. However, you do not get advisory services or research reports from these brokers.
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Other Types of Brokers
Arbitrageurs and Jobbers are types of brokers and are sub-brokers. Jobbers trade in stocks and securities for themselves and cannot provide investment services for others. Arbitrageurs purchase securities from one exchange and sell them in another exchange.
What Qualifications Does a Stockbroker Need?
When you are selecting a broker for investments, you must be aware of the following qualifications to assess their expertise:
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Education
To become a stockbroker, an individual needs a bachelor’s degree in business administration or finance. They must have a firm grip on financial forecasting, accounting processes, etc.
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Examination
Becoming a broker requires passing the SEBI-administered examinations. The required examinations are NISM Series XV and NISM Series XVIII. Another exam might include the Series 7 examination by FINRA.
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Experience
You must choose a broker with practical knowledge of the industry. Brokers with experience from an internship or a full-time job at a brokerage firm are reliable and experienced.
Difference Between Traditional Stock Broker and Discount Broker
As there are different types of brokers in investments, having a look at their differences helps you choose one:
| Parameters | Full-Service Brokers | Discount Brokers |
| Types of services | They provide you with a stack of investment services, covering trading facilities to advisory, market insights, reports, etc. | You will only help with trade executions and will not provide any advisory or additional services. |
| Applicable charges | You must pay higher charges as commissions, fees, and AMCs due to a higher service range. | You can avail of investment services at minimal costs, typically at a flat fee. |
| Speed of trade settlements | Trade settlements or transactions might take longer if they involve an in-person consultation. | You can execute trades faster as you can interact with such brokers through chatrooms, emails, etc. |
Conclusion
You need a stockbroker who acts as an intermediary between you and your preferred stock exchange. A few types of brokers are available, like full-service, discount and sub-brokers. You must assess your investment needs and finances to select the best one to manage your investment activities.
FAQ’s
1. Do I need a stockbroker to invest in the stock market?
Yes, you need a broker before you start investments or trades in the securities market, as you cannot directly trade with a securities exchange.
2. What qualifications should a stockbroker have?
You must choose a qualified broker for seamless investments. Your broker must have a bachelor’s degree in finance and pass the SEBI-regulated or FINRA-sponsored examinations with practical experience.
3. What is the role of a stockbroker in buying and selling stocks?
The key role of a broker lies in managing purchases and sales of stocks and other securities listed on an exchange. They act as a middleman for investment activities.
4. How does a stockbroker make money?
A broker in stocks executes transactions, like purchases or sales of securities. In return, you pay them a certain charge as a brokerage fee or commission.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
