What is a stock broker

A stock brokerage is a licensed agent that buys and sells stock on behalf of an investor. In order to trade stocks on a stock exchange, the brokerage has to be a member of the exchange.

There are three types of brokerages. Full service, discount and online brokerages.

Full service brokers, in addition to buying and selling stocks for their clients, also provide them with research and investment advice. Most full service brokers have dedicated research departments that produce piles of research data on the thousands of publicly traded corporations. Clients get access to this exclusive research and also get to receive personalized investment advice and management from the brokerages’ investment professionals. Also, full service brokers usually have a nationwide network of offices that allow them to personally attend to the concerns of their clients. These services make full service brokerages appealing to novice investors. In exchange for this, full service brokers charge a much higher commission than discount or online brokerages. Full service brokerages allow you to place orders over the phone or through their websites.

Discount brokers unlike full service brokers provide very little research and almost no investment advice or management. As a result their commissions are much lower than that charged by full service brokers. Discount brokers are preferred by experienced investors who prefer to do their own research. Most discount brokers allow for orders to be called in by phone, and most have websites that allow you to trade online. And a good number have a network of offices that provide services.

Since the advent of the internet age, a new kind of brokerage has appeared. Online brokers, much like discount brokers, provide no investment management or advice, and usually only provide minimal third party research. Their appeal is the very low fees that they charge as commissions. Most online brokers however do not have physical offices and do not accept trades over the phone.

Other concerns investors should pay attention to are the minimum balance required to open an account, the quality of customer service, the amount of time it takes to execute an order and any associated fees that might be attached to stock orders.