Stock brokers play a very important role in the stock market. But what is a stock broker? A broker is a professional who buys and sells certain products and commodities and earns through commissions. A stock broker therefore buys and sells stocks and other securities. He has to work by the book and the law requires him to fulfill certain conditions and perform transactions in an ethical manner. He needs to pass the Series 7 exam or the General Securities Representative Examination to be eligible to work as a stock broker. A stock broker works on behalf of his clients and provides various services to them. Some of the basic services provided and defines what is a stock broker are:
The broker works under the directions of his investor client and carries out the transaction in the trading floors. Any person who knows what is a stock broker also knows that this is his primary responsibility.
This is a value-added service that a stock broker provides to his clients, especially those who have invested a huge amount of capital. The broker plays a dual role here. He not only buys and sells stocks as per instructions of his client but also gives valuable advice about which stock to buy and which shares to sell at specific prices. The broker has to be careful though not to cross the line and dish out advices that involve insider trading, which is strictly prohibited.
This service is generally entrusted to the stock brokers when they have earned the trust of their clients. When the client has complete trust on the judgment and integrity of his broker, he gives a discretionary option for him to take investment decisions on his behalf. This is the most comprehensive service that a broker can provide. So much is at stake here as any wrong decision by the broker may result in heavy financial losses for his client. But this setup should be adapted only when the investor knows his broker well enough. Anyone conversant with what is a stock broker and how he works also know that some of the stock broker’s information may not be reliable.
It completely depends upon the client whether he wants to avail all these services from his stock broker or not. Choosing a reliable and trustworthy broker is the key here. However, it is difficult to gauge a broker’s character and integrity in the beginning so it’s best to try him out first for basic transactions. Only when you have developed trust and a comfortable working relationship should you give discretionary powers to your broker. If you are an expert in stock market analysis and if you’re an investor who can keep tabs on the happenings in the market, then it’s better to do the analysis yourself and let the stock broker focus on the transactions. It not only saves you the service charges but also gives you full control and confidence. But for a relatively new investor who does not have proper knowledge of stock analysis, the advisory service can be a good option.