Stock Broker

What is Stock Broker and what is the role of a broker in Stock Market?

A Stock Broker (or simply Broker) acts as an intermediary between the investors and the Stock Exchange. They are registered with SEBI and are also registered with the Stock Exchanges like BSE and NSE, as members.

Investors cannot trade on the Stock Exchange directly and they need to do their transactions through registered members. The brokers display the latest prices from the exchanges to the investors and place the orders of the investors on the exchange. In addition, they also provide Holdings statement, Portfolio value, Profit and loss reports etc.

The Share Brokers which also provide Demat related services to investors, are also known as Depository Participant (DP).

Stock Broker types

Depending on the services provided, there are many types of Brokers in stock markets. Also, the investors should not get confused between a Broker and a Sub-Broker, because the Sub-Broker is affiliated to a main Broker.

So, the Sub Brokers follow the policies and guidelines that are largely decided by their parent Broker. This way, each Broker could have thousands of Sub-Brokers registered with it.

Online vs Offline Brokers

Online Stock Brokers are those that provide investors digital platforms like websites, mobile apps, APIs etc. to directly trade stocks on their own. These platforms offer the benefit of faster order collection and execution on the Stock Exchange. Investors can also get live prices, portfolio tracking and real time order execution status through the online platforms.

An Offline Stock Broker on the other hand, allows investors to place their orders by calling or sending a written request to the Broker. In this case, the Brokers have their own trading desks that buy and sell securities on the exchange, after receiving the requests.

As you can notice, the time and effort involved in the offline cases is more. Therefore, many of the Offline Brokers charge a higher Brokerage. These days, most of the Brokers offer a hybrid service where they have an online platform but also allow offline order placement.

Full service vs. Discount

Full Service Brokers are the traditional companies that offer trading services + research reports + investment services. Typically, the Full Service Brokers have many branch offices and provide both online and offline services.

Full service brokers have many departments for:
    Research and recommendation,
    Customer relationship management,
    Trading desks,
    Call centers and Front Office etc.

This way, they are able to offer personalized investment and trading advice to investors. Due to the more services offered and better customer engagement, these Brokers charge higher Brokerage and Account Maintenance Charges (AMC).

The Discount brokers have recently gained popularity due to their low brokerage, AMC and no-frills services. With easy access to internet, it is now possible for investors to gain access to the stock markets and place orders from anywhere.

The Discount Brokers typically offer high-tech online platforms, which are good for investors who like to manage the analysis and investments themselves. Most of them do not provide any research reports and those that do provide it, charge a fee for advisory services. These Brokers have very few branches or collection agents and require you to send the documents online or via courier / post.

Due to the small number of employees and limited infrastructure, their business model allows them to provide basic services at a very low cost.

General vs. Specialized

The Specialized Brokers are those who provide unique services, which other brokers can not provide. Example: If you are trading in the commodities market, the common Brokers do not allow you to take delivery of the commodity. The trades are settled for cash by the general Brokers, near the expiry date.
On the other hand, a ‘Commodity Specialized Broker’ might provide services like, warehouse space to take delivery of the commodities.

The term ‘General Brokers’ is used for those brokers that provide you with the services related to normal trading and investing on the Stock Exchange. The retail investors will mostly be dealing with the General Stock Brokers and they will be able to trade all marketable securities.

The Specialized Stock Brokers on the other hand, provide services to big companies and organizations for their special requirements related to inventory, treasury etc.

Authorised Person and Sub Broker

Some Stock Brokers also have multiple Authorised Persons (APs) or Sub Brokers registered with them. These sub entities act on behalf of the Broker, and are primarily responsible for helping the end customers to easily trade on the Stock Exchange.

So, the AP / Sub Broker acts as an intermediary between the Stock Broker and their clients. The important point to note is that these sub-entities are not permitted to handle the cash or securities of the customer. The main Broker is responsible for handling these for the clients.

Services offered

A typical Stock Broker will provide at least the following services to the investors:

  • Submit buy and sell orders on the Stock Exchange
  • Credit and debit of securities to / from the Demat Account and other Demat related services
  • Providing and blocking margins for intraday and Derivatives trading
  • Online platforms and mobile apps (very important for online Brokers)
  • Clearing and Settlement of transactions (Sometimes these activities are outsourced to specialized agencies)
  • Generate statements for holdings, profit and loss, Trade Book etc.
  • Investment advisory and stock tips (provided by Full Service Brokers)
  • Maintaining and displaying the cash balance of investors
  • Payment of Exchange Transaction Charges, taxes, Demat charges, STT / CTT etc. on behalf of their clients
  • Send the Contract Note at the end of the trading day mentioning details about the trades executed on that day
  • Send a Margin Statement which contains the details about the margins blocked and required on any trading day.

Of course, many Stock Brokers provide more free and value added services depending on their technical capabilities and the customer base. Most share market Brokers offer an integrated 2-in-1 Trading Account (Trading Account + Demat Account) or a 3-in-1 Trading Account (Trading Account + Demat Account + Bank Account). So, investors should select a StockBroker which best fits their needs.

Disclaimer

  • This page is for education purpose only
  • Some information could be outdated / inaccurate
  • Investors should always consult with certified advisors and experts before taking final decision
  • Some images and screenshots on this page might not be owned by FinLib

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