What is a Stockbroker? Types and their importance?

A stockbroker is one of the most important stock market participants in the stock market. services of a stockbroker are unavoidable. it is playing such an important role in the market. the stockbroker opens a Demat and trading account in the depository on behalf of the client, because individuals can not interact directly with the stock exchange. so the stockbroker plays the middleman role here.and most importantly the stockbrokers are strictly monitored by the SEBI (Securities and Exchange Board of India).

Stockbroker

A stockbroker is a licensed and regulated financial firm that facilitates buying and selling transactions in various financial instruments like stocks, derivatives, and bonds. a stockbroker buys and sells the instruments on behalf of the client because we cannot do transactions in the stock exchange directly. so stockbroker does this for both retail and institutional investors. Basically, all financial market transactions will execute through a broker and they charge commission or brokerage charge for their services.

History of stock brokering

Share broker as an institutionalized profession dates back to 2nd Century BC, Rome. However, post the collapse of the Roman Empire, such a 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 the 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 the Bombay Stock Exchange in 1875.

Importance of stockbrokers

Stockbrokers playing an important role in the stock market, as we all know their primary duty is to buy and sell securities for the clients. but in the modern era of fintech, broker firms developed a lot. they are providing more services than just buying and selling. the stockbrokers are making the stock market investments simple by introducing new technologies, the most important and advanced thing regarding this is a mobile application and call n place the order. mobile application made a revolutionary change in stock trading. anybody can buy or sell shares in a single click within seconds. and you can always stay connected with the stock market or your portfolio through your stockbroker’s mobile application.

some traditional brokers provide call n trade facility (for verified clients). in this method, you can call your stockbroker and place your order through a phone call. not only these two benefits but there also are many attractive features that are there for stockbrokers and they are improving it day by day. following are few important features of stock brokers

• Stockbroker provides multiple trading terminals with charts
• It provides good and accurate stock recommendations
• provide various type of trading methods
• reduces your loss by introducing multiple types of order placings.
• attractive mobile applications
• stockbrokers conduct stock market related webinars and seminars
• they spreads financial literacy
• making stock trading simple and effective
• introducing new technologies to make trading easy and accurate

Functions of Stockbroker

stockbrokers plays a crucial role in the stock market ecosystem. their functions are unavoidable . following are the important functions of the stockbrokers.

Buying of securities

One of the most basic functions of a stockbroker is to buy stocks on behalf of Its clients. broker may do this in different ways, depending on the type of account the client has. In a Demat account, the stockbroker buys stock for a client based on the order placed by the client through the broker’s terminal.

Selling of securities

same as buying, the stockbroker sells the share of the client’s account on behalf of the client. the broker provides various types of trading. for example, if we are buying a share in ‘intraday` order, it has to be sold before the market closing. if we forgot to sell the share before market hours the broker will automatically sell the share.

Research

The stockbroker conduct stock market research, they have well experienced and certifies professionals for research purpose. based on the research and market conditions the stockbrokers will provide stock recommendations with high accuracy. this will help the traders and investors to make quick and easy decisions to buy and sell.

Marketing

Stockbrokers apply various marketing techniques to attract clients. Also, this marketing will improve the qualities of the brokering firm. these days brokers are providing online classes and seminars about the stock market. some brokers providing paid courses. ultimately these will result in good in stock market participation of new peoples. Most importantly these will increase awareness about the stock market. also helps to increase the financial literacy of common peoples.

Types of brokers

Based on the services provided, stock brokers are classified as below. you can choose the type of stockbroker according to your purpose and services needed

• Traditional (full-service) brokers
• Discount brokers

Traditional (full-service) brokers

Traditional stockbrokers aka full-service stockbrokers offer a wide range of services and products. including financial and retirement planning, investing and tax advice, regular portfolio updates, and margins to purchase investment products on credit which will be subjected to necessary terms and conditions.as the name implies it provides FULL SERVICES regarding the stock market. Since the full-service brokers offer personalized services or stock recommendations and services, brokerage charges will be expensive. Importantly traditional brokers have a physical presence that will help the clients more effectively.

Discount brokers

Discount stock brokers mainly focus on buying and selling services only and they don’t provide more services. hence the brokerage fees and other charges are very less comparing to a traditional broker. that is the main reason behind its name. a discount broker will not provide stock recommendations and research. one of the disadvantages of discount brokers are, unlike traditional brokers physical presence is very less. that effect in their customer services.

Comparison of traditional and discount brokers

	Traditional Broker	Discount Broker
Brokerage	Usually, charge a percentage of the trade value. Consider low brokerage fee for high volume trade	Charge a flat fee on each executed order irrespective of the trade value
Brokerage charges	0.25% to 0.75%	₹10 – ₹20 per order
Services	Broking services, research, wealth management, retirement planning, depository services, and more	Very rarely, may have broking services with few brokers offering Mutual Funds services
Suitable for	Frequent traders who need advice and assistance related to all kinds of trading and investment services	Traders who prefer online trading
Physical Presence	Strong PAN India presence of most of the brokers	NIL/very less
Customer Service	Has RM assistance, branch servicing, email, chat, doorstep servicing, and more	Online services, email, chat
Examples	ICICI Direct, Kotak Securities, Sharekhan, HDFC Securities, Axis Direct, Edelweiss, and more…	Zerodha, Upstox, Trade Smart Online, SAS Online, and more…

Final thoughts

Stockbrokers are one of the most important participants in the stock market. they play a crucial role in the market as we mentioned above. In this post we discussed the Indian stockbrokers and their types and importance, I hope this post will help you to understand the basics about the stockbrokers. will discuss more in the coming posts.

happy Investing