Overview
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.
Benefits
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.
Cost/Pricing
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.
Timing
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.
Companies/Industries
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.
