Role of Stock Broker in a Stock Market
When you plan to start investing in a stock market, the first thing you have to do is to choose a stock broker. It is just like choosing a car you think is most suitable for you. You can thoroughly research the whole market in order to find the best car for you but require a medium or a venue to execute the actual transaction. The same strategy is needed when you want to buy stock in a stock market. You can select a company to invest in by conducting detailed research about its future prospects but you still need to have a broker to make the final transaction and purchase its stock from the stock market.
A stock broker acts as the agent of an investor and represents his clients to buy or sell stocks, derivatives and other securities.
The term stock broker applies to companies that deal in securities as well as to its employees who are technically working for the brokerage and are its registered representatives. Most stock brokers work far away from stock trading floors. The primary role of a stock broker is to execute transactions on behalf of his clients by buying and selling securities in the stock market.
As a representative of his clients, a stock broker seeks the best deals to buy and sell stock. They usually deal in all types of securities and also handle derivatives, such as commodity futures. They also advise their clients about when to make transactions and guide them about what to look for in market dealings. However, they are not licensed investment advisor and therefore, you should always consult Your Personal Financial Mentor before making any financial investment decision in a stock market. After completion of the transaction, they forward related information to their clients and make transfer arrangements of stock certificates or other paperwork.
Stock brokerage firms and individual stock brokers are regulated by the Securities and Exchange Commission and other specific markets. An individual broker must pass a test administered by concerned regulatory authorities and must complete his registration through brokerage firms, which in some cases require registration with a concerned securities commission.
Stock brokers are paid commissions which usually consist of a percentage of a value of the trade transaction in a stock market. Brokerage firms are also known as discount brokers as they offer trade transactions at a single price. They provide recommendations only on those investments that meet financial goals and needs of a client. A stock broker provides advisory services for investing in a stock market and in return, an investor pays a fixed fee to them. They also offer special features, such as check writing, interest-bearing accounts, credit cards and direct deposits and hence, play a role of providing these limited banking services. Margin interest payments are charged to investors for borrowing against the brokerage account for investment in a stock market. They also take service charges from their clients for performing administrative tasks, such as for handling Individual Retirement Account (IRA) and for mailing stocks in the form of certificates. They can also purchase options, exchange traded funds (ETFs), bonds, shares, mutual funds, and other investments on your behalf.
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