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Who is a stockbroker?
A stockbroker, also known as a broker is a financial market representative who operates in securities. Their primary job role dictates obtainment of purchase and sale orders and execution of the same. Market participants or investors rely on their expertise and knowledge regarding market dynamics to invest in stocks and other investment options.
Share brokers either work individually or as part of a brokerage firm.
A broker is officiated post their registration with a recognised stock exchange such as Bombay Stock Exchange or by working for a brokerage firm. Such brokers levy a charge in the form of commission, fee, or mark-up. This charge widely varies from broker to broker. Some dealers charge a flat fee, whereas some levy a percentage of the securities value traded.
The share market brokers’ foray is dominated by discount brokers. This set of brokers has mustered widespread popularity because of their low charges which make the security market more accessible to laymen. A key distinction between a discount broker and regular a stockbroker is that the latter is required to have a profuse knowledge of the market and has to go through arduous examination routines while these parameters are not compulsory for a discount broker.
History of stock brokerage
Share broker as an institutionalised profession dates back to 2nd Century BC, Rome. However, post the collapse of the Roman Empire, such profession remained obsolete until the European Renaissance. It was a small-scale practice with sparse and sporadic trading of government bonds in a few Italian cities such as Venice and Genoa.
However, company stocks were not formally traded until 1602, when Dutch East India Company released the first publicly traded stocks through the Amsterdam Stock Exchange. Owing to the law of private property rights indoctrinated in the Dutch Empire, the profession of the stock broker’s flourished.
At the end of the 17th Century, the London Stock Exchange came into existence, and almost a hundred years later, in 1792, the New York Stock Exchange was formed. India and Asia saw its first stock exchange in the name of Bombay Stock Exchange in 1875.
Types of Share Market Brokers
The different types of share brokers are listed below –
- Traditional or full-time brokers: This kind of brokers provides a vast assortment of products and services to its customers. These services involve securities’ trading, investment advice, retirement planning, management of investment portfolio, taxes on capital gains, etc. Full-time stockbrokers charge a hefty commission, however, given the range of their services, such cost might justify.
As was earlier mentioned, such brokers go through rigorous training and examinations to attain the job and thus have in-depth knowledge regarding the stock market. Therefore, they are adequately trained to make a bid on your behalf and steer your portfolio to its maximum earning potential and minimise risks on it.
- Discount brokers: Discount or online stock brokers dominate the band of brokers. Along with their inexpensive nature, they also offer convenience to the laymen in terms of time and place utility. Market participants do not need to personally meet discount brokers and carry out their investment through the internet.
Investors with minimal disposable income can also start investing in the stock market through discount brokers. However, not all discount brokers offer the same level of expertise as a traditional broker and thus are a less profitable option for companies and individuals who can afford hefty investment corpus and costs.
The following table illustrates the distinguishing features of the above mentioned types of brokers.
|Distinctive points||Traditional Share Broker||Discount Broker|
|Kind of brokerage and range of fees||These brokers levy a percentage of securities’ value traded as commission. In India, such percentage varies from 0.25% – 0.75%.||Discount brokers usually ask for a flat fee against each transaction. Online brokerage is within the range of Rs. 10 – 20.|
|Customer type||Ideal for investors, who require personalised services, is a regular and committed market participant and has a large volume of investments.||Is suited to individuals who are not regular in their investments, are new to the market or are unable to afford the high charges imposed by full-time brokers.|
|Services offered||Some of its primary services include brokerage services, portfolio management, financial advisory, depository services, Mutual Funds services, and retirement planning.||Some basic services such as brokerage, Mutual Funds services, and passive portfolio management.|
There are two other subtypes of stockbrokers who operate in the stock market. These are –
These are independent brokers who trade in securities for their own sake and not on behalf of other investors. They are not licensed to trade in someone else’s name and cannot levy commission from others. They quote two prices on stocks, one of which is the buy price quote and the other is the sale price quote. The gap between these two prices is their profit margin.
This subset of stockbrokers is known to purchase securities from one stock exchange at a lower price and then sell the same at a higher price in a different stock exchange.
How the Advent of the Internet has Impacted Stock Market?
The rise of online stock brokers and investment platforms is testimonial to the intensity of impact the internet has had over the stock market. Earlier, only high-end individuals could transact in the stock market by paying high charges to full-time brokers. However, after the ease in accessibility of stock market and share stockbrokers on the internet, the stock market has percolated to a much more convenient level.
The shift of the stock market has significantly elevated the volume of transactions which took place and also forged the way for start-ups and small-scale businesses to raise capital by releasing stocks in the market. The stockbrokers play a crucial role in aiding investors to transact in the stock market day in and day out.