- The company or firm acting as the middleman between investors or buyers and sellers.
- Brokerage firms generate income from trading commissions, management fees and interest margin.
- There are two types of brokerage firms. They are full-service brokerage firms and discount brokerage firms.
The company or firm acting as the middleman between investors or buyers and sellers (of securities). It receives a commission, either as a percentage of the transaction amount or a flat fee.
There are different kinds of brokers such as discount brokers and full-service brokers.
How does a brokerage firm work?
Brokerage firms are the financial institutions which provide brokerage services such as execution of buy and sell orders for interested participants. Brokerage firms generate income from trading commissions, management fees and interest margin.
Types of brokerage firm
There are two types of brokerage firms.
Full – service brokerage firm – Full-service brokerage firm provides a wide range of financial services. This type of firm allows you to buy and sell securities. The main objective of these financial institutions is to provide financial consulting. Brokerage firms’ charges depend on the number of services they provide to the client. The full-service brokerage firm is more expensive than a discount brokerage firm. This type of brokerage firm also provides services over the internet, such as buying and selling of securities over the internet or via phone.
Discount brokerage firm – This type of brokerage firm doesn’t provide any consulting or planning. Discount brokerage firms allow you to do online research and make decisions by giving access to online services. Discount brokerage firms only execute the orders, and it does not provide any advisory services.
Functions of Broker
- The broker acts as a middleman between buyer and seller.
- The stockbroker works for brokerage firms and offers services like buying and selling of securities, bonds, and options and earns income through commissions.
- Floor broker manages the buy and sell activities for stocks on the floor of securities and commodities exchanges.
- Real estate broker deals with selling of real estate such as apartment, land, etc. Real estate broker speaks for the owner of the property and generates income from the commission received.