When it comes to financial planning, there are a lot of stock terms that you should be familiar with. If you’re going to make smart decisions about your money, your investments and your financial future, then the more you understand these basic investment terms, the easier it is to make the right decisions. One of the basic terms you should be familiar with is “stock broker.” No doubt you’ve heard the term before, but maybe you don’t exactly understand what a stock broker is or what they do. If that’s the case, read on for a definition of stock broker, as well as information about this important piece of your financial puzzle.
What is a Stock Broker?
A stock broker is defined as a professionally-trained person who buys and sells stock on behalf of his or her clients for a commission or other fee. These sales usually happen on the stock market through various securities exchanges. The broker is usually associated with specific brokerage firms, but can also be an independent agent.
What do Stock Brokers Do?
Stock brokers handle client money and execute buy and sell transactions for the clients. Some brokers may work on the floor of the stock exchange, such as the New York Stock Exchange. In old days, most transactions on the floor took place when the buy and sell orders were manually matched with other brokers. In the modern exchange, transactions are now mostly matched electronically, so most brokers now work at the desk in their employer’s offices.
Stock brokers also make calls to the clients and prospective clients to develop new business for their companies. This may be for new business, or it may also be to move a large amount of stock that has come on the market. Clients can be retail clients or other institutional investors such as pension funds, mutual funds or hedge funds
Stock brokers make their income from commissions on the stock transactions.
How Are Brokers Trained?
To become a broker, one must typically hold at least a bachelor’s degree in finance or business administration. This ensures that the broker begins with a basic knowledge of how business and the markets work. Usually, brokers also train in highly competitive environments before the firm allows them to handle their own clients. All of this training helps to ensure that your broker has a solid understanding of what is best for you and your investments.
Are Stock Brokers Necessary?
It used to be that the answer to his question was pretty much yes. However, with the rise of various financial websites, it is possible to cut out the broker completely and buy and sell on your own. However, in doing so, you are missing out on the years of training and professional experience that brokers can bring to the equation in the form of knowledge and advice. For this reason, while a stock broker might not be necessary to buy and sell, a broker is necessary if you want to get the most out of your financial transactions or have a complex account.
If you are looking for someone to help you make decisions about your financial transactions, a broker can help. Trained to understand the ins and outs of the financial markets, a broker is there to offer stock market advice and help you get the most out of your investments. They can also help you with trading.
But keep in mind that stock broking is essentially a sales position. As a result, people who succeed as a broker are good salespersons. If you are good at math or financial products, but not a very good sales person, you are better off working as a financial analyst for a bank. If you like work with people and guide them in their financial lives, you may instead wish to work as a financial advisor or a financial planner.
Do I Need a Broker if I have an Online Trading Account?
Most online brokerages offer a self service platform where you decide on what you wish to buy of sell and you construct and manage your own portfolios. We are talking about discount brokers here. There are some brokers that go beyond just providing you the ability to trade – they also give you research and advice personalized to your situation. Full service brokers, as they are called, cost more and are great options for people with larger assets who would like a professional to manage their accounts. These accounts are not cost effective for smaller portfolios. If your portfolio does not yet have sufficient zeroes at the end, consider managing your trading account online by your own self. There is enough research available online that will help you make good transactions. All you need is some time for due-diligence.
What is the Best Stock Broker for Beginners?
Since online brokerages tend to be self service accounts, when we talk about brokers in the online trading context, we are essentially discussion the brokerage firms. Some of these firms may not have real human stockbrokers assisting investors.
Picking a broker is a very subjective decision. You will need to consider your investment style, how much hand holding you require, do you want a live person to aid in your transactions and would you like to invest in securities other than stocks. If you are a beginner, you should also consider how much educational material does the broker offer.
Personally I have been with Fidelity Investments for a very long time and have always found them to be exceedingly sufficient for my needs. They offer variety of investments and are able to assist with anything complex I might wish to do. Trades now are zero transaction cost and executions are swift. They also offer a deep library of educational resources if you need. You can open accounts in minutes with no minimums. I have found them to be everything I need in my broker. Best of all, if I ever need to call them and speak with some one, I can reach a knowledgeable human in a few seconds. There is no long wait on the phone or the chat.
Which Online Broker has the Lowest Stock Trading Fees?
A large number of reputed brokers now allow you to trade stock and sometimes options at no cost. Fees are no longer a concern the way they used to be in the past. Additionally, brokers now a days come in many different flavors. Some are mobile only, others give you full featured desktop experience, while some others are designed for active traders with specialized software and high volume transactions. For most investors, the top 4 brokers, Fidelity, Etrade, TD Ameritrade, and Charles Schwab will work very well. For the younger generation that is more comfortable with apps, you may want to look at Robinhood or some other of their kind, although I cannot really recommend them as they are not as robust as the 4 names I mentioned earlier.
What do I need to Trade Stock from my Broker?
No or low commission trades are now common so at the minimum you should require this from your broker. Any tools to make investing easier can be useful. For example, some brokers offer portfolio optimization services. How well they work is a point worth debating, but they do help you figure out a consistent plan for portfolio allocation and risk management. Do they have a calculator to figure our your retirement needs? Can they offer recommendations that fit your investment style? Is the website user friendly? Do they have good onboarding process for new investors? Do they help you learn if you are a beginning investor? Are customer accounts insured? As your portfolios grow, you may wish to trade options or bonds or precious metals so you need to make sure that your broker can support your needs. If you are an aggressive investor (or want to trade options), you will want a margin account. In this case, the margin rates the broker charges you can be the difference between long term profitability versus long term loss. Make sure that the margin terms are easy to work with and the margin interest rate is competitive. Many of these questions will arise over time but it is good to be aware of these when you are looking for a broker.