It is vital important get a stockbroker to help you trade, especially in the world of stock market. Though most people hire brokers, they are left with many questions about the work they do. A broker’s primary role in the investment world is to serve as the vehicle through which you either sell or buy your stocks.
Don’t get confused. Brokers can also be individuals who take up the same tasks as the companies. Although you can buy stocks directly from some companies that are issuing them, it is important to have a broker to advise you on the future of the stocks that you are investing in.
What is the difference between institutional stockbrokers and personal stockbrokers?
Personal stockbrokers are brokers who generally offer the same services to individuals and small businesses while institutional stockbrokers make their money from big institutions and companies through securities placement fees and investment banking, advisory services and other brokerage services.
Although the primary task of brokers, whether personal or institutional stockbrokers, is to buy and sell securities, they can perform other tasks for you. The institutional stockbrokers performs the following tasks:
- Providing advisory services – Investors pay brokers for investment advice that allows them to access the firm’s research information about the future market analysis.
- Offering limited banking services – Brokers offer features like check writing, credit/debit cards, interest bearing accounts, electronic deposits and withdrawals to help you enjoy these services rather than transacting from the bank all the time.
- Brokering other securities – In addition to stocks, brokers can buy ETF’s, bonds, mutual funds and many other options of investments on your behalf.
Personal stockbrokers make their money through various fees including:
- Brokerage commissions – This is a fee that is paid for buying or selling stocks as well as other securities.
- Margin interest charges – This is the interest charged to investors for borrowing against their brokerage account for investment purposes.
- Service charges – These are charges for performing any extra administrative tasks for you. Brokers also charge their investors for individual retirement accounts as well as mailing stocks that come in certificate form.
Take home
A broker is one of the most important people next to your investment, so choose wisely. Do not be put under the pressure of using someone who is not qualified just because their rates are low and look friendly – they might cost you a lot later in life.
It is important to ensure that the broker you choose is registered with the relevant registration companies that protect your investment. This gives you security against your broker should they decide to play dirty tricks on you. It also secures the money you invest in the brokerage firm, ensuring that you are paid your returns as the agreement states.
Now that you know why you need to hire a broker and what their work is, go ahead and find the best one for the task you have.
