A brokerage firm, or simply broker, is a financial institution that facilitates the purchase and sale of assets or financial instruments between a buyer and a seller. Brokerage firms serve a clientele of investors who trade in assets and instruments of various types such as stocks, currency pairs, commodities, derivatives and many others, usually through company agents or through tools such as platforms Of electronic trading, the use of which is becoming increasingly widespread among traders and investors around the world. In the case of the stock market, these firms use both trading platforms and brokers to carry out their clients’ transactions in the market.
A traditional brokerage firm that offers a complete service to its clients usually performs more functions than the simple execution of transactions with shares or other financial assets in the name of its clients. The personnel of this type of brokers are given the responsibility of investigating and analyzing the markets to provide appropriate recommendations in such a way that they can direct the actions of their clients, which in some cases may include portfolio managers and fund managers. pension. These firms also provide additional margin for certain approved clients so that they can make investments on credit, which are subject to conditions and terms agreed upon by both parties.
Online brokers (discount brokers)
A discount broker or online broker is a company that charges a relatively small commission by allowing the execution of its customers’ transactions in the market, through computerized trading systems (the electronic trading platforms that employ many brokers in the market). Rather than using the services of a human agent or broker to place the orders on the market. At present, most traditional brokerage firms also offer low-cost online trading options and compete strongly to attract customers and their money for which they are rapidly switching to this method of trading in the markets, which does not It is only less expensive but also more efficient.
Currently, most Forex brokers, for example, operate as online brokers and offer their customers the ability to trade in the Forex market from any site with an Internet connection through a trading platform. This allows these companies to offer a service with quite low costs compared to other markets. A similar trend is being seen in other markets, such as the stock market or futures market, where brokers are targeting their services on online trading platforms.
Another of the ways that some brokers use to reduce costs is through the execution of orders only a few times a day, for which they add the orders of a large number of small investors in one or more blocks of transactions that are Created at certain specific times during the day. This allows you to reduce costs in two ways:
By matching purchase and sale orders within the firm’s order book, the total amount of the asset to be traded may be reduced, which in turn reduces the fees the broker has to pay to others.
In the case of stock market brokers, for example, since investors’ money is combined prior to the purchase or sale of shares, this allows the investor to contribute relatively small amounts of money with which fractional shareholdings Can be acquired. This is not usually possible with a regular broker.