Brokers are financial intermediaries who mediate between the buyer and the seller. They set up deals for their clients, plan transactions, negotiate the terms, and are compensated in the form of commission. Once a broker becomes involved in a transaction on behalf of the buyer and the seller (principal), he is regarded as an agent. A broker can be an individual or a firm.
How It Works
There are many types of brokers who deal with specific transactions. An investor can approach a particular broker depending on his investment goals. A commercial or a merchandise broker serves as a link between the buyer and the seller by settling the terms of purchases and sales between them. Online brokerage services are in trend now. These virtual firms give the investor options such as carrying out research, tracking the latest market news, and offering investment tips. However, there is not much interaction between the broker and the investor. An insurance broker acts as a middleperson between the insurer and the insured. He advises only the insured and is not bound by the rules of the insurer. Stockbrokers are engaged in buying and selling of stock and other securities on behalf of the principal. They also give financial advice to their clients. A Forex broker helps a trader deal successfully in the foreign exchange market. Thus, the working of brokerage services varies according to the investment avenue.
It is an imprudent idea to invest with little understanding of investment basics and without a financial plan. Brokers can educate a prospective investor and offer him the most suitable investment strategy because they are acquainted with all the options and have profound knowledge and expertise. Online brokerage services can work very well because they charge almost no commission and you can access them at any time. Many brokerage firms have investment banking and underwriting divisions and this can give clients greater access to initial public offerings (IPOs) and new bond issues. Brokers generally do all the paperwork and have connections with multiple financial institutions. A broker can be a valuable source of information and comfort for a rookie.
Once a transaction is through, the broker gets a certain percentage of the transaction value as his commission. Apart from this, brokers in different areas of finance charge commissions unique to their category of finance. For instance, Forex brokers earn through rise in the value of currency called earning through pip or spread.
Brokers will do all the leg work for you so if you want to save a little time and energy and you have extra money to spend, then you should get a broker. For instance if you are trying to find an apartment, but you live out of town and don't have a lot of time to apartment-hunt, brokers are a viable option as long as you are willing to spend more money.
As mentioned earlier, online brokerage services are a popular trend right now because they provide easy access and fast services. You can begin by going on the official website of Online Brokerage Services, Inc. and create your profile. Two examples of broker firms, on the other hand, are TD Ameritade and Fidelity Investments. Researching online, however, will yield less expensive alternatives such as Share Builder and Zecco Trading.