A stockbroker is a professional trader who buys and sells shares on behalf of clients. The stockbroker may also be known as a registered representative or an investment advisor.
Most stockbrokers work for a brokerage firm and handle transactions for a number of individual and institutional customers. Stockbrokers are often paid on a commission basis although compensation methods vary by employer.
Brokerage firms and broker-dealers are also sometimes referred to as stockbrokers. This includes both full-service brokers and discount brokers, who execute trades but do not offer individualized investing advice.
Most online brokers are discount brokers, at least at their basic levels of service, in which trades are executed for free or for a small set-price commission. Many online brokers now offer premium-level services with higher fees.
- A stockbroker or broker buys and sells stocks at the direction of clients.
- Most buy and sell orders are now made through online discount brokers. This automated process reduces fees.
- Wealthy individuals and institutions continue to use full-service brokers, who offer advice and portfolio management services as well as completing transactions.
Understanding the Role of a Stockbroker
Buying or selling stocks requires access to one of the major exchanges such as the New York Stock Exchange (NYSE) or the NASDAQ. To trade on these exchanges you must be a member of the exchange or belong to a member firm. Member firms and many of the individuals who work for them are licensed as brokers or broker-dealers by the Financial Industry Regulatory Authority (FINRA).
While it is possible for an individual investor to buy stock shares directly from the company that issues them, it is much simpler to work with a stockbroker.
Until recent years, it was prohibitively expensive to get access to the stock markets. It was cost-effective only for high net-worth investors or for large institutional investors, such as the managers of pension funds. They used full-service brokers and could pay hundreds of dollars for executing a trade.
However, the rise of the internet and related advances in technology paved the way for discount brokers to provide online services with cheap, fast, and automated access to the markets. More recently, apps like Robinhood and SoFi have catered to micro-investors, allowing even fractional share purchases. Most accounts in the markets today are managed by the account owners and held by discount brokers.
Brokers who are employed by discount broker firms may work as over-the-phone agents available to answer brief questions, or as branch officers in a physical location. They also may consult with clients subscribing to premium tiers of the online broker.
Mobile phone apps like Robinhood and SoFi cater to micro-investors, allowing even fractional share purchases.
A comparatively smaller number of stockbrokers work for investment banks or specialized brokerage firms. These companies handle large and specialized orders for institutional clients and high-net-worth individuals.
Another recent development in broker services is the introduction of roboadvisers, algorithmic investment management carried out via web or mobile app interface. There is minimal individual interaction, keeping fees low.
Educational Requirements for Stockbrokers
A bachelor’s degree in finance or business administration is typically required for stockbrokers. A strong understanding of financial laws and regulations, accounting methods, principles of economics and currency, financial planning and financial forecasting all are useful for working in the field.
Most successful stockbrokers have exceptional interpersonal skills and are able to maintain strong sales relationships.
Licensing Requirements for Stockbrokers
Every country has its own credentialing requirements for stockbrokers.
In the U.S., registered brokers must hold the FINRA Series 7 and Series 63 or 66 licenses, and be sponsored by a registered investment firm. Floor brokers in the U.S. must also be members of the stock exchange where they work.
In Canada, would-be stockbrokers should be currently employed by a brokerage firm and are required to complete the Canadian Securities Course (CSC), Conduct and Practices Handbook (CPH), and the 90-day Investment Advisor Training Program (IATP).
In Hong Kong, applicants must be working for a licensed brokerage firm and pass three exams from the Hong Kong Securities Institute (HKSI). Those who pass the exam must still be approved by the financial regulatory body to receive a license.
In Singapore, becoming a trading representative requires passing four exams, Modules 1A, 5, 6, and 6A, administered by the Institute of Banking and Finance. The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) have licensing authority.
In the United Kingdom, stockbroking is heavily regulated and brokers must achieve qualifications from the Financial Conduct Authority (FCA). Precise qualifications depend on the specific duties required of the broker as well as the employer.
Global credentials are also becoming increasingly sought-after as signals of legitimacy and financial acumen. Examples include the certified financial planner (CFP) and chartered financial analyst (CFA) designations.