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A stock broker is a professional in the financial industry who serves as an intermediary between investors and the stock market. Stock brokers facilitate the buying and selling of stocks and other securities on behalf of their clients. They play a crucial role in helping individuals and institutional clients access trading platforms and make informed investment decisions. Their responsibilities include providing investment advice, executing trades, managing investment accounts, and ensuring clients financial goals align with their investment strategies. To become a stockbroker, individuals must pass regulatory exams, such as the General Securities Representative Exam, acquire a license, and may hold professional certifications like the Chartered Financial Analyst (CFA) designation.
Access to major exchanges like the New York Stock Exchange (NYSE) or NASDAQ is essential to engage in stock trading. To participate in trading on these exchanges, individuals must either be members of the exchange themselves or be associated with a member firm. Member firms, along with many of their employees, are authorized as brokers or broker-dealers by the Financial Industry Regulatory Authority (FINRA).
In the past, entering the stock market was financially daunting. It was considered cost-effective primarily for wealthy investors or large institutional players, such as pension fund managers. They typically employed full-service brokers and were willing to pay substantial fees for trade execution.
Although individual investors could directly purchase shares from issuing companies, working with a stockbroker was generally more straightforward.
However, the advent of the internet and advancements in technology transformed the landscape by enabling discount brokers to offer online services that were cost-effective, swift, and automated, granting easy access to the markets. More recently, apps like Robinhood and SoFi have specifically catered to micro-investors, facilitating fractional share purchases. Today, the majority of accounts in the markets are self-managed by account owners and held with discount brokers.
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Discount Broker
Traditionally, discount brokers primarily focused on executing trades on behalf of their customers. Their primary function was to buy and sell securities in the stock market as per their clients instructions. Discount brokers were known for their cost-effective approach to trading.
Full-Service Broker
In contrast, full-service brokers provided a comprehensive suite of financial services that extended well beyond mere trade execution. They offered a broader breadth of financial services, including:
However, in todays landscape, the distinction between discount and full-service brokers has blurred significantly. This transformation is primarily due to online brokerages driving trading commissions down to zero. Discount brokers have adapted to the changing environment by enhancing their services. They now offer research and advisory services in addition to pure trade execution, bridging the gap with traditional full-service brokers.
Online Broker Selection. Begin your search by identifying an online broker that aligns with your investment goals and preferences.
Consider Cost Factors. Evaluate the cost structure of potential brokers. Look for discount brokers that impose a low minimum investment requirement and do not charge ongoing account fees. This cost-efficient approach can help you maximize your investment returns.
Educational Resources. If you are new to investing or seeking to expand your knowledge, consider selecting an online broker that offers educational resources. Many online brokers maintain libraries of how-to content on their websites. These resources can be invaluable in helping you get started and make informed investment decisions.
Opening a Brokerage Account. Once youve chosen a broker that suits your needs, you will need to open a brokerage account. This account is essential for buying or selling stocks and other investments, including mutual funds. The process of opening a brokerage account is typically straightforward and can be completed online in a matter of minutes. Your chosen broker will guide you through this process, ensuring that you meet all the necessary requirements and understand the accounts terms and conditions. This step is essential in establishing your presence in the financial markets.
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