Securities Markets

Who is Stockbroker / Financial Broker?

Who is Stockbroker / Financial Broker?

A stockbroker / Financial Broker is regarded as a very very important person for one who invests indirectly. The trading activities done by the investors are executed by a security firm acting as either a broker or a dealer.

A firm acting in a brokerage capacity serves as an agent for investors by finding another investor to take the other side of the transaction. For doing this job, the broker is compensated by a commission.

Who is a Stockbroker / Financial Broker?

A stockbroker is a financial professional who executes orders in the market on behalf of clients.

A stockbroker may also be known as a registered representative (RR) or an investment advisor.

Most stockbrokers work for a brokerage firm and handle transactions for a number of individual and institutional customers.

Stockbrokers are often paid on a commission basis although compensation methods vary by employer.

Related Post: What is OTC Market/Over-the-Counter Market?


Key Points

A stockbroker is a financial professional who buys and sells stocks at the direction of clients.

Most buy and sell orders are now made through online discount brokers. This automated process reduces fees.

Wealthy individuals and institutions continue to use full-service brokers, who offer advice and portfolio management services as well as completing transactions.

A broker in the securities markets is an intermediary representing buyers and sellers in securities transactions.

A dealer, on the other hand, may take positions in various securities. A dealer may buy or/and sell securities for its own account.

If the dealer has a long position i.e., owns the stock, and the stock declines in price, the dealer losses money.

On the other hand, if the dealer has a short position in a stock, he has temporarily sold more stocks than he owns.

Under this circumstance, if the stock increases in price, the dealer will lose money if covers its short position by purchasing stock at market prices higher than the dealer originally sold the stock for.

The difference between the bid price and the ask price is the compensation (profit/loss) for the dealer.

The bid price refers to the price that the dealer wishes to pay to the seller of the securities and the ask price is the price at which he will sell a security.

Dealers are called market makers as they will sell or buy the securities for their own account in order to balance customers’ orders.

If a party of the transaction is not available, the dealer will become the second party to constitute the transaction. A vast majority of securities firms act as both brokers and dealers.

Types of Financial Brokers/Stockbrokers

Membership in the organized stock exchange is frequently referred to as seats, though trading is conducted without chairs.

Being an investor an individual will fill out a form disclosing information about his personal income and finance.

An investor will deal with a broker who will probably be his connection with the market at the same time.

The broker will provide the investor with information about the company he is interested in, about general economic trends, and about other investments of interest.

However, the brokers are categorized as under:

Commission Brokers:

The vast majority of the seats of an organized stock exchange are owned by the commission brokers.

They are the agents on the exchange floor who buy and sell securities for the clients of brokerage houses. They act like employees of a brokerage house.

They communicate via telephone with a brokerage, receive transactions from the brokerages that employ their services and they send back confirmation messages. They may also act as dealers and seek profits by trading for their own accounts.

Floor Brokers:

Floor brokers execute orders for commission brokers having more orders than they can handle. From the brokerage house, orders of the clients will be phoned to floor of the exchange to a person called a floor broker.

Floor brokers basically buy and sell securities on the floor of the exchange. They are free-lance members of the exchange and help prevent backlogs of orders, and allow many firms to operate with fewer exchange memberships than would be needed without their services.

Floor Traders:

Floor traders are sometimes called registered traders. They differ from floor brokers as they trade primarily for their own accounts.

They are speculators searching the exchange floor for profitable buying and selling, opportunities. They trade free of commission as they deal for their own accounts. They can buy and sell the same security on the same day in order to profit from price movements.


The floor brokers purchase securities from a person called a specialist. Specialists are assigned to trade on the floor where they make a market in, one or more stocks assigned to them by the exchange.

These market makers act as both a dealer and a broker in the stocks assigned to them. As a broker, they execute orders for other brokers for commission, and as a dealer; they buy and sell shares of their assigned stock for their own accounts.

The specialists keep an investor in one or more stocks and buy and sell out of that inventory.

They publicize prices at which they are willing to buy a stock and prices at which they are willing to sell. Specialists must accept the obligation to maintain a fair and orderly market for their assigned stocks.

What do stockbrokers do?

Stockbrokers serve as intermediaries between markets (e.g. exchanges) and the investing public.

Brokers take orders from customers and try to fill them at the best price possible. In return, they earn a fee known as a commission.

Today, many stockbrokers have transitioned to financial advisors or planners as online brokerage platforms allow users to enter their own orders via the web or mobile app.

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