A stockbroker is an individual or company that buys and sells stocks on behalf of investors, essentially acting as a middleman between the buyer and seller of a security.
The term stockbroker can refer to a number of professionals and firms, and it's important to understand how they differ and how to determine the best way to invest your money.
What Is a Stockbroker?
A stockbroker helps facilitate investment transactions on behalf of their clients. A stockbroker can be an investment advisor or manager who works independently or for a brokerage firm. You can make trade requests with an individual stockbroker or simply trust them to manage your portfolio with your best interests in mind.
Brokerage firms themselves, including online brokers, discount brokers and full-service brokers, are sometimes referred to as stockbrokers. With these stockbrokers, you can place trades online or through an individual who works at the brokerage firm.
How Do Stockbrokers Make Money?
Ultimately, it depends on the type of stockbroker. If you're working with an individual advisor or investment manager, they'll typically charge a commission for each trade, a percentage of your assets under management or a flat fee.
Many online and discount brokerage firms no longer charge trading commissions, but they may make money by earning interest on your uninvested cash, charging interest on margin accounts or selling your browsing data.
Full-service brokerage firms that offer more hands-on advice and investment management may charge a percentage of your assets under management or trade commissions.
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Do I Need a Stockbroker?
Stocks are listed on exchanges like the New York Stock Exchange or Nasdaq. As an investor, you can't visit an exchange and buy and sell stocks like you would groceries at your local supermarket.
Instead, you need the help of a stockbroker who's licensed and registered to facilitate transactions with the stock exchange. That doesn't mean you need to work with an individual advisor to manage your portfolio, though.
If you don't have a sizable portfolio yet or you'd prefer to manage your investments on your own, you can stick with an online or discount brokerage firm to minimize your costs. However, if you want help with your portfolio, you may enlist the help of an investment advisor or full-service broker to provide you with additional resources, guidance and hands-on assistance.
How to Choose a Stockbroker
Most investors can get started with a brokerage account with an online or discount stockbroker. But depending on your situation and goals, here are some steps you can take to determine the best option for you:
- Look at how much you have to invest. For new investors who don't have a lot of money to put in the market, it typically makes sense to open a brokerage account with an online or a discount broker because many have low or no opening deposit requirements. On the flip side, individual investment managers and full-service brokers may require you to have tens or even hundreds of thousands of dollars to invest.
- Compare costs. Brokerage fees, commissions and other expenses can eat into your returns, so it's important to consider what you're willing to pay. Remember, though, that higher fees can be worth it if you're not sure of yourself and would prefer to have a professional manage your investments.
- Consider account options. Depending on your investment goals, some brokers may not provide the necessary accounts. For example, some online brokerage firms may offer few or no retirement account options. You may also need to do a little extra research to find brokers that offer educational savings plans and custodial accounts.
- Look at other investment options. A diversified portfolio typically includes more than just stocks. To maintain a proper asset allocation, look to see if stockbrokers also offer access to bonds, exchange-traded funds (ETFs), mutual funds, real estate and other types of securities.
- Consider additional resources. Full-service and discount brokers are more likely to offer resources to help you make better investment decisions. And if you're working with an individual investment advisor, you could get personalized guidance based on your situation.
The Bottom Line
If you're looking to invest in the stock market, you can expect to need to work with a stockbroker to execute your transactions and maintain your portfolio. Depending on your situation, needs and goals, you may consider investing on your own through an online or discount brokerage firm, or you may choose to work with an individual investment advisor or full-service broker.
You may also consider working with a financial advisor who can provide you with a more comprehensive plan for your finances, including but not limited to your investment portfolio. Whatever you decide, take the time to research and compare your options to determine the best approach for you.