LECTURE 6
CAPITAL MARKET
WHAT IS A BROKER?
A broker is an individual or firm that acts
as an intermediary between an investor
and a securities exchange. Because
securities exchanges only accept orders
from individuals or firms who are members
of that exchange, individual traders and
investors need the services of exchange
members.
WHAT IS A BROKER?
Brokers provide that service and are
compensated in various ways, either
through commissions, fees, or through
being paid by the exchange itself.
WHAT IS A BROKER?
A broker is an individual or firm that acts as an
intermediary between an investor and a
securities exchange.
A broker can also refer to the role of a firm when
it acts as an agent for a customer and charges
the customer a commission for its services.
Discount brokers execute trades on behalf of a
client, but typically don’t provide investment advice.
Full-service brokers provide execution services as
well as tailored investment advice and solutions.
UNDERSTANDING BROKERS
Brokers may provide investors with research,
investment plans, and market intelligence. They may
also cross-sell other financial products and services
their brokerage firm offers, such as access to a private
client offering that provides tailored solutions to high
net worth clients. In the past, only the wealthy could
afford a broker and access the stock market. Online
brokering triggered an explosion of discount brokers,
which allow investors to trade at a lower cost, but
without personalized advice.
DISCOUNT VS. FULL-SERVICE BROKERS
Discount brokers can execute many types of trades on behalf
of a client, for which they charge a reduced commission.
Their low fee structure is based on volume and lower costs.
They don’t offer investment advice and brokers usually
receive a salary rather than a commission.
Full-service brokers offer a variety of services, including
market research, investment advice, and retirement planning,
on top of a full range of investment products. For that,
investors can expect to pay higher commissions for their
trades.
REAL ESTATE BROKERS
In the real estate industry, a broker is a licensed real estate
professional who typically represents the seller of a property.
A broker's duties when working for a seller may include:
Determining the market values of properties.
Listing and advertising the property for sale.
Showing the property to prospective buyers.
Advising clients about offers, provisions, and related
matters.
Submitting all offers to the seller for consideration.
BROKER REGULATION
Brokers register with the Financial Industry Regulatory
Authority (FINRA), the broker-dealers’ self-regulatory body.
In serving their clients, brokers are held to a standard of
conduct based on the “suitability rule,” which requires there
be reasonable grounds for recommending a specific product
or investment. The second part of the rule, commonly
referred to as “know your customer,” or KYC, addresses the
steps a broker must use to identify their client and their
savings goals, which helps them establish the reasonable
grounds for the recommendation.
BROKER REGULATION
Brokers register with the Financial Industry Regulatory
Authority (FINRA), the broker-dealers’ self-regulatory body.
In serving their clients, brokers are held to a standard of
conduct based on the “suitability rule,” which requires there
be reasonable grounds for recommending a specific product
or investment. The second part of the rule, commonly
referred to as “know your customer,” or KYC, addresses the
steps a broker must use to identify their client and their
savings goals, which helps them establish the reasonable
grounds for the recommendation.
WHAT EXACTLY DOES A BROKER DO?
A broker facilitates trades between individuals/companies
and the exchanges where the broker is licensed. Depending
on the nature of the trade and marketplace, a broker can
either be a human being who is processing the trade
themselves or a computer program that is only monitored by
a human. Typically, stock trades are computerized whereas
something like real estate requires a more personal touch.
WHAT IS A BROKER AND WHY DO I NEED ONE?
A broker is an intermediary between those who want to
make trades and invest and the exchange in which those
trades are processed. You need a broker because stock
exchanges require that those who execute trades on the
exchange be licensed. Another reason is a broker ensures a
smooth trading experience between an investor and an
exchange and, as is the case with discount brokers, usually
won't charge a commission for normal trades.
HOW DO YOU BECOME A BROKER?
Becoming a broker depends on a few things. First, having
a background or degree in finance or economics will be
extremely helpful. This may get you noticed but in order
to actually be hired and perform as a broker, you will
need to be appropriately licensed.
