As you know, stocks are traded on exchanges. How can an ordinary person who decided to become a trader or investor get there? Everything is very simple - you need to turn to stock broker. This is a professional who, on behalf of a client and at his expense, buys and sells stocks, bonds and other instruments. Brokers (exchange intermediaries) are specialized brokerage or investment companies or banks.
Do without an intermediary?
In life, people often resort to the help of various kinds of intermediaries. Sometimes one could do without them, and in some cases they are simply necessary. For example, looking for a house to buy, a person goes to a real estate agent - a realtor. But if an apartment can be bought without resorting to the services of an agent, then this number will not work with shares. Despite its name, the stock market is by no means a bazaar that anyone can come to. Only professional participants can get access there, including organizations that have a license for an exchange intermediary, that is, a broker.
So the broker is an integral link in the exchange chain. And any person, whether private or legal, should begin his journey to conquer the peaks of the stock market with a visit to a broker.
Broker features
The main task of the broker is to provide his client with the opportunity to trade on the exchange. It acts as a connecting element between the trader and the exchange platform, and is also the guarantor of placing customer applications on the exchange. It must be understood that the broker is not responsible for their execution, and even more so for the result of the transaction. However, he, as an exchange intermediary, is obligated to guarantee that all trader's applications will be placed in the exchange trading system in a timely, accurate and complete manner. In addition, his duties include the documentation of all procedures related to exchange trading.
Also, a broker can lend to his client, that is, provide him with borrowed funds on certain conditions. In practice, this means that the trader, if desired, gets the opportunity to operate with an amount exceeding the balance in his account. For example, having 100 thousand rubles, he can buy shares for 150 thousand. This broker function is very important because it allows the trader to earn much more.
How is stock trading
How does an exchange intermediary fulfill its main function? In the days before the Internet, brokers and other bidders came to the exchange room and gathered at a special platform (in the "hole"). Trading took place by shouting prices - in this way counterparties found each other and made deals. Of course, in our time, everything is different - bidding has long been translated into electronic format. Now the participants are located at the computer and submit applications via the Internet. For this, special software provided by the broker is used - a trading terminal (platform). Also, many brokers give customers the opportunity to submit applications through the web interface.
In practice, this works as follows. The trader monitors the change in the price of the traded stock in the terminal and at some point decides to buy (sell). He sends the corresponding order to the exchange intermediary through the terminal. The broker's trading system accepts the client’s application and transfers it to the exchange. This happens automatically and takes a split second. If the application is satisfied, the transaction is considered to be completed - the changes in its assets will be reflected in the client’s terminal.
How else can an exchange intermediary be useful?
Today, the functions of brokers are not only to provide the client with access to the exchange. In their arsenal there are many additional services. For example, providing access to current news, market analytics, trading recommendations. Depending on the client’s desire to spend money, brokers are ready to show varying degrees of participation in his trading. Say, deliver signals to open positions or even appoint a personal adviser.
Some brokers develop their own, more advanced, trading and analytical platforms for clients. Often, the services of companies include the provision of programs for automated trading - the so-called exchange robots.
In addition, the broker performs the functions of a tax agent, in any case, in Russia. Indeed, from the profit that a trader receives on the exchange, he is obliged to pay income tax. The broker takes these cares upon himself. He will calculate the amount of tax, withhold it from the client’s funds, pay it to the budget and can even draw up a tax return (often for a fee).
Thus, good brokers are not just intermediaries in stock trading. They can carry out many auxiliary functions, thereby providing the client with more comfortable conditions.
Will have to share ...
For their efforts, brokers receive commissions from clients. When trading stocks, most often the commission is set as a percentage of the turnover. As a rule, several tariff plans are given to the client depending on the size of the trader’s account (the larger the account, the lower the percentage). In derivatives markets where they are traded futures and options (a special type of securities), fixed commissions are usually set.
Is the intermediary in exchange operations expensive for the client? For example, commissions of Russian brokers on the Moscow Exchange stock market amount to hundredths of a percent of the turnover. If the client makes several transactions a year, month or week, for him this amount will be invisible. The situation is worse with active traders trading intraday (intraday) - they give a decent portion of their income to brokers.
In addition, brokers can set additional commissions - for depository services (storage of client’s securities), for using the trading terminal, for accepting applications by phone and others. In addition, some brokers charge a monthly fee for the provision of their services. Additional services may also be provided on a reimbursable basis.
How to choose?
First of all, you should decide on which exchange you want to trade. Accordingly, the broker must be selected from among those accredited at this site. Today, most companies provide access to several sites at once, but the conditions may vary.
When choosing a broker, it is extremely important to pay attention to how reliable he is. Such factors may indicate this:
- company credit rating;
- how long does it exist as an exchange intermediary;
- amount of authorized capital;
- average customer trading volume by years.
It is also worth paying attention to other points, such as the conditions for the provision of a trading terminal (free or for a fee), the amount of commissions, the minimum amount to start trading, the availability of additional services. And of course, in our time, customer reviews play a significant role in choosing a broker.
Traders like to joke that the only reliable way to get rich on the exchange is to become a broker. In fact, there is only a fraction of the joke in this expression. Indeed, few manage to consistently receive income by buying and selling shares and other market assets. But the broker will earn regardless of whether the transactions of his clients are profitable or unprofitable.
