A Broker is an individual who is licensed to participate in the share market on behalf of Traders and investors. For playing this intermediary role between exchange and trader , Brokers charges brokerage from traders. Traders have to be very careful while picking up a right broker for themselves as a huge sum of money is to be paid as brokerage for their services. Therefore depending on the needs , a trader should wisely select its broker. There are two types of brokers for whose services a trader can go: Full services brokerand discount broker . Both offers services which are required by a trader to successfully trade in stock market, but they follow different mechanism of offering services.
Following are some the major roles of brokers in stock market
1)Suggest best deals
Mostly a broker deals in all different types of securities. Brokers suggest the best deal to buy or sell stocks and may also advise traders when to buy or sell stocks. But they are not licensed investment advisers.
2)Handling trade
A broker receives orders from traders and further place those orders on exchange.Once the orders has been successfully placed , traders are informed about it. However this is the case with full service brokers, discount brokers and online brokers facilitates traders with a trading platform where traders can place their order on their own . All the orders are reflected in demat account once they are executed. Shares in electronic form will be added if a trader buys a share and removed if he sell a share.
3)Margin Financing
Now a days stock brokers are well capitalized. Brokers lend capital to traders who are looking for leverage positions. A margin amount is to be paid by trader after which they are allowed to take a position in market.Generally this margin amount is 50% . This is not a mandatory role of a broker.
4)Paid on commission
Brokers charge brokerage in the form of commission for the services they offer to traders. This is some percentage of value of the trade in case of full service brokers. Discount brokers charge flat commission which is pre decided on every executed order.Traders who do not actively trade in the market, this brokerage cost is not a matter of concern for them but for those who actively trade brokerage cost is a big burden for them. They must learn efficient ways to reduce the amount paid as brokerage .
These are some of the major roles of a broker in stock market.All the brokers are regulated by SEBI(Security Exchange Board Of India) and it is assured that no false practice is being adopted by any broker. To offers brokerage service, a broker has to obligatorily fulfill all the guidelines which are being started by SEBI. In a nut shell it can be concluded that brokers offers service to traders and investors which are required by them to successfully place their orders and trade in stock market. They assist traders with possible ways of achieving their trading goals as well.
