The Role of Brokers in Stock Trading
Updated: May 11
A stock broker may be a middle man between the stock exchange and therefore the trader. He facilitates the trades of the stock traders.
A peculiar feature of the stock exchange is that a trader can neither directly find the sellers if he wishes to shop for a stock, nor buyers if he wishes to sell his stock. The entire process of shopping for and selling the stock takes place through offices of the stock brokers.
Broadly speaking, there are two sorts of stock brokers. They’re full service stock brokers and discount stock brokers.
The full service stock brokers, because the name suggests, provide an entire range of brokerage services. They supply advice to their clients about which stocks to shop for or sell. They advise the traders about when to shop for or sell stock and the way long to carry it.
Full service brokers provide education to their clients about the entire process of stock trading. You’ll read tutorials about the varied aspects of stock trading, the stock trading lingo, bear and bull markets then on.
The websites of the complete service stock brokers have research tools and research facilities for the clients. These research tools contain symbol finders, news flashes, charts for analytical and fundamental research. The stock brokers also send news letters to their clients about the newest stock exchange trends which help to predict the stock exchange movements.
All these facilities provided by the complete service stock brokers accompany a price. Full service stock brokers charge the very best commission rates within the industry.
If you're a replacement entrant to the stock exchange, you want to choose the services of a full service stock broker. As a "newbie", you are doing not possess the specified knowledge, confidence and expertise available trading.
The second sort of stock brokers is discount brokers. Because the name suggests the discount brokers give discount on their commissions. Their commissions are less than those charged by the complete service brokers.
The reason why the discount brokers charge lower commission is that they are doing not offer trading advice and similar other facilities to their clients like research and analysis tools.
A discount broker just performs one task. He executes the client's trade command, buy or sell orders and limit or stop the order of losses. There are not any trading recommendations, no hot tips.
Those who are looking for discount brokerage services are generally experienced traders. They skills to require their own trading decisions.
The least expensive brokers are the web stock brokers. Online stock brokers don't incur many overhead charges. They can, therefore, pay a lower commission on their services.
Since it's easier to line up online brokerage firms, many brokers have jumped into the market. There’s an enormous competition; therefore the commission rates are lower in online stock trading.
Stock brokers generally offer two sorts of accounts to their members.
One is 'cash account'. In brokerage account, you're offered no credit. You’ve got to pay full amount once you buy a stock.
The other sort of account is 'margin account'. You’ll buy a stock on margin. You are doing not need to pay the complete price of the stock. The stock broker allows you to pay a particular percentage of the worth of the stock. The remaining price is paid by the brokerage.
The amount of margin varies from broker to broker "but the margin must be protected by the worth of the client's portfolio. If the portfolio falls below a specified amount the investor will need to add more funds or sell some stock."
It must, however, be noted that since margin accounts enable the investors to shop for more stock, they'll make greater profits or suffer higher losses. Margin accounts, therefore, aren't recommended for the new and inexperienced traders.