What is a stock broker?
Those who wish to buy or sell shares of publicly traded companies do so by hiring a stockbroker. The broker receives a commission and, in some cases, a monthly fee for managing the account.
When most people use the term “stockbroker,” they are most likely referring to a stock broker. However, there are some differences between the two. Stock trading, which includes hedge funds and day trading, is more correctly thought of as a subset of traditional stock market trading. Stock brokers typically deal with people who want to invest more aggressively or who may have complex trading strategies they want to implement. The minimum investments are usually high, and the fees can be too.
A stock broker will typically do more extensive market research, and stock firms often have extensive, proprietary systems for trading. Many stock trading companies are established as hedge funds and are housed within major investment banks.
Hedge funds are quite different from the traditional approach to investing in the stock market or mutual funds, which is to buy stocks and hold them for a considerable time. Hedge funds are typically very active, and often the fund manager will take large risks that can pay off in the form of huge profits or losses. In addition to investing in stocks and bonds, hedge funds may also speculate in currencies or potentially any other investment that is included in the plan or strategy.
You can also find stock brokers at firms that specialize in day trading. These private equity firms make money by allowing select traders to access firm financing. Some will require traders to use the investment strategy developed by the company, while others will allow the investor to choose the strategy as long as their choices are profitable.
Stock brokers can be found in many different types of investment firms. The investor’s experience and comfort level with risk should determine the type of stock broker selected.
Full-service brokerage firms will generally have equity brokers on staff to help investors who want to take a more aggressive approach to investing. These firms offer a more “practical” service to the client, carrying out market research, account control and advice. Naturally, their fees and commissions will be among the highest.
Many online stock brokers offer investors the ability to choose their own investments and strategies. Setting up an account with this type of broker is usually quick and easy. You can enter your trade orders 24/7, although they cannot be executed until the market opens.
Due to the fact that stock brokers typically do far more trading than those who buy and sell for investors holding long-term positions, fees can add up quickly. It’s not uncommon for investors to find that a quarter to a third of their profits have gone to the stockbroker or his company. Investors should do their due diligence on all investment opportunities, but with the fast-paced nature of stock trading, it’s even more critical to do so before making the investment.