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Stock brokers 101
Find out why you might need a broker and how to find the right one for your investment strategy.
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What does a stock broker do?
A stock broker is someone who is licensed to buy and sell investments on behalf of an investor. Since individual investors can’t directly access the stock market, a broker helps facilitate the process by executing trades on behalf of their clients.
Essentially, the broker acts as a go-between for the investor and the stock market. In addition to executing trades, stock brokers also offer advice and investment guidance. Based on market conditions, they might suggest to a client which stocks to buy or sell. Stock brokers can trade a variety of securities, including stocks, bonds, mutual funds, options, forex and futures.
Stock broker vs. brokerage
Brokerages are firms or companies that are licensed to execute trades. Stock brokers are employed by brokerages the same way that financial advisors are employed by banks. Stock brokers execute trades through a brokerage firm on behalf of their clients.
What is a full-service broker?
Brokerage companies typically come in three varieties: full-service brokerages, discount brokerages and robo-advisors.
Full-service brokerages employ stock brokers to execute trades and provide advice for brokerage clients. Discount brokerages are online platforms that allow investors to apply for their own brokerage accounts and execute trades independently. Robo-advisors are automated investment platforms for passive investors who want their portfolio managed by an algorithm-driven electronic service.
Investors that want the guidance and expertise of a licensed trading professional may prefer to open an account at a full-service brokerage. Investors that want more control over the investment process may prefer a discount or online brokerage that allows them to execute their own trades.Back to top
How do I find the right broker?
Choosing the right brokerage can be tricky. Narrow down your options by:
- Selecting a brokerage type. Full-service brokerages are a solid option for those who prefer the in-person guidance and expertise of a stock broker. For investors prepared to execute their own trades, online brokerages and robo-advisors stand at the ready.
- Picking your market. The market you plan to invest in impacts the brokerages available for you to choose from. Most US brokerages offer access to the NYSE and Nasdaq, but platforms that offer access to international markets, like Fidelity and Zacks Trade, are few and far between.
- Deciding what you’d like to invest in. Do you plan to trade stocks or would you like to explore the crypto market? Brokerages vary in the assets they have available for trade, so make sure your broker offers access what you plan to invest in.
- Checking fees. Keep an eye out for account management fees, trading commissions, transfer fees and currency conversion costs.
- Comparing research tools. If opting for an online brokerage, review the platform’s research and analysis tools. Less experienced investors won’t need the same type of sophisticated research tools required by advanced traders.
What are the license requirements for becoming a stock broker?
All stock brokers in the US must be licensed by the Financial Industry Regulatory Authority (FINRA) in order to practice. But before taking the mandatory tests to receive a license, you typically need to be sponsored by a broker and complete a minimum of four months employment.
Most stock brokers hold a four-year degree in accounting, math, finance, banking, economics or business. Some even acquire an MBA or Master of Science in Finance. While post-secondary education isn’t required to take a FINRA exam, education, training and experience can help you pass.
There are two tests you must take to become a licensed stock broker: the Series 7 exam and the Series 63 exam. The Series 7 exam is a 125-question exam that covers investment basics and Securities and Exchange Commission (SEC) regulations.
The Series 63 exam, also called the Uniform Securities Agents State Law Examination, is a 60-question exam that covers the principles of transaction law and state securities regulations. Not all states require stock brokers to take the Series 63 — residents of Colorado, the District of Columbia, Florida, Louisiana, Maryland, New Jersey and Ohio only need to pass the Series 7 exam.Back to top
Compare online stock brokers
If you prefer to choose on online broker, compare platforms below.
How do stock brokers make money?
The following conditions determine how much a broker is paid:
- Commission. This is the primary source of income for brokers. A commission is given to the broker every time you trade through them. The more you trade, the more you pay.
- Referral bonuses. Sometimes brokers will encourage and recommend certain stocks to invest into. The brokers receive a referral bonus if you decide to invest in that said product.
- Broker fees. Calling a broker for advice or to make a transaction will cost you.
The average salary of a broker is $71,720, but varies based on the level of experience the broker has plus the amount of commission they receive.
Finding the right stock broker can mean spending less and making trades that a re best for your investment strategy. A brokerage can help you manage your portfolio and set practical investment goals. Review your brokerage account options with multiple providers to find the platform best suited to your investment needs.
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