Any brokerage firm makes, in reality, a financial institution that facilitates the investors and traders present in the stock market to sell and purchase financial securities. To effect a contract within the stock market normally two parties are needed wherein the buyer is referred to as long position holder and the seller is called as short position holder. In actuality, the broker performs the role of a middleman amid seller and purchaser and makes possible for them to carry out a trade on different financial securities. For offering all these services, the brokerage firms get compensation in the shape of fees and commission when the deal takes place. There are some important points that one needs to take into account while hiring a broker in the stock market. The commission slab, support system and expertise of brokers are some of such points that may help one to decide on collaboration.
In the financial industry, you will find two sorts of brokers such as:
Traditional brokers or full-service brokers
The full-service brokers or traditional brokers can be said to the oldest found in the financial industry. They commonly do much more than only performing the role of an agent to complete the process of trading. In their services are included the right researching pertaining to the stock market to provide required suggestions to the investors within the stock market. Very frequently such brokerage houses, in addition, provide loans additionally to some customers to buy investment on credit that shall be regulated by terms and conditions.
2- Discount brokers
The online brokers or discount brokers levy their customer fairly less as compared to the traditional brokers. The reason responsible for such low commission is that they allow their customers carry out trade through automated, system of computerized trading in place of hiring a real broker to aid with the process of trading.
The means which they utilize to provide very low-priced service is that the discount brokers perform orders just sometimes within a day. The first and the foremost amass orders that happen to be created by the small investors into a single block trades that are produced at certain particular times in a day.
Below are enlisted several draws of using the discount brokers over full-service brokers:
- Any discount broker does not provide suggestions regarding trading,but they facilitate the process of trading merely for cheap commissions in comparison to the full-service broker.
- Within the stock market, the investors or traders who sell and purchase securities using the discount brokers bank a hefty sum of money on deals and commissions. It generates enough money for them to be invested further in carrying out trade and taking home better earnings.
- Very frequently the investors are needed to adhere to their positions for more time than it may be really needed to compensate huge commissions. Rarely the discount brokers sell some stocks to earn huge commission.
- Several discount brokers provide education tools, besides assisting the traders and investors take a well-informed decision.