Understanding the Business of Stockbroking and Role of Stockbroker
A stockbroker is a professional individual who purchases and sells shares together with other securities to clients of institutions and the retailers. The activity is carried out through the exchange of stock or even over the counter in return for the commission. Professional designations know the stockbrokers depending on the services they provide and the type of security they usually offer.
For one to qualify as a broker, he or she must typically earn bachelor’s degree in business administration. The stockbrokers perform the double duty in carrying out their activities. They always act on behalf of the brokerage firms who initiate the transactions for the accounts of the companies. They also buy and sell in the name of the customers or clients. This double action speeds up the security flow on an open market.
The stockbrokers also acquire and issue out the securities in their accounts to create a market for the securities for their identified consumers. The existence of the stockbrokers is so much essential in the business. They also earn an outstanding payment from the activities. It is possible for the brokers to make proper compensation from both sides of security transactions.
The stockbrokers who are specifically assigned to an investment banking operations always participate in the underwriting of the security contributions. They always enter into the contractual arrangements with the company when they act as the company issuing agents. Occasionally, they get a piece of the securities offering for their individual accounts.
The stockbrokers do the responsibility of representing the clients in the business transactions. They always perform the duties that are supposed to be done by the clients. They do this by seeking the best deals for buying or selling the stocks. They look for the most profitable ways to go through in the selling and acquiring of the stocks. Most of the brokers prefer dealing with almost all types of securities. They do not specify the security type to deal with because all of them vary at different time durations of business.
The brokers are capable of advising the clients on the duration or time to buy or sell the stocks. They have the relevant experience on the market trend. They are aware on the durations that one is supposed to buy or sell. The brokers also win the orders from the customers to buy or sell the stocks. After taking the order, they pass them to their brokerage firm’s network to a floor trade. The broker later relays the information to the clients when the transaction is complete.
The brokers receive their payments on a commission basis. In most cases, it is converted as a percentage of the trade value. They are only paid according to the number of transactions carried out. The discount brokers always offer trade at a single price. The suitability rules control all the brokers. They are expected only to recommend investments, which meet the financial goals and objectives of the customers.
The Securities and Exchange Commission controls both brokerage firms and individual brokers. It is important for the individual brokers to excel in the tests administered by the financial industry regulatory authority. After the candidate as qualified, he must carry out all the registration procedures through a brokerage firm.
The stockbrokers control and avoid losses by carrying out the stuffing. It is the act of selling the undesirable securities to the client’s accounts. It makes it possible for the brokers to escape taking of the losses on the securities that are to decline in the prices. It is not a simple task to determine whether the transactions you are carrying out will end up to fraud. The stockbrokers possess the freedom of buying and selling without considering the consent of the clients at CMC markets. The financial advisors mostly favour the stockbrokers by advising the clients to offer their approval for all the transactions in their accounts.
The brokerage also performs a dual purpose in most cases. They can act as the broker during the execution of orders in place of the clients. The brokerage can also serve as a dealer when it is involved in trading in its account. The functions performed depends on their suitability to the duty.
By Vijay Singh Rathore