Understanding Stock Brokers

Written by Charlotte Wood (last updated February 21, 2009)

Once you feel you have a firm grip on what exactly the stock market is, you'll then face the question: what is a stock broker? You hear about stock brokers everywhere, whether that be in the movies, on the news, or in the elevator up to your cubicle office—it seems like everyone who's a serious investor has a stock broker, so what exactly is one and what do they do?

A stock broker is, in the simplest terms, a middle man for investors. Your stock broker takes your money and invests it where he advises, where you tell him, or both. He (or she) handles the official transactions and should advise you when to buy or sell. One of the great things about stock brokers is that they take much of the stress of investing off of you. You don't have to deal with those transactions or their complexities, but conversely you don't necessarily have as much control over your money. Of course, your money is still yours, but because you're not the one dealing directly with it, it's harder to ensure everything's okay.

There are three different types of stock brokers: execution only, advisory dealing, and discretionary dealing. Execution-only brokers will only do what the investor wants. Advisory-dealing brokers can advise the investor on when to buy and sell and what stocks to invest in. Discretionary dealing is even more loose in that the broker has the freedom to make investing decisions for the investor (this one takes a vast amount of trust). These options do give you more control over your money and allow you to delegate more or less control to your broker.

Stock brokers usually work by charging a flat fee and a commission percentage to the investor. Depending on how successful and many times the broker will adjust their fees to how well the market is faring. If you want to invest wisely, then you should probably hire a stock broker just because it's their job to monitor the stock market and if you hire a good one, you'll benefit. Do your homework when checking out brokers and until you can really trust them, guard your money carefully.

Author Bio

Charlotte Wood


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