What are stockbrokers?

Consider this scenario. You just received a bonus along with your paycheck. And like the prudent person you are, you decide to invest this money in the stock market instead of spending it all away on an impulsive purchase. You’ve read quite a bit about the stock exchanges and all that, but now that you decide to actually invest your money in the share market, you’re not really sure about how to practically go about it.

Here’s where stockbrokers come in.

What are stockbrokers?

Stockbrokers, also known in common parlance as share brokers, are financial intermediaries who make it possible for investors and traders like you to buy or sell shares on a stock exchange. The term “stockbrokers” is also commonly used to refer to brokerage firms, which employ professional brokers and offer stockbroking services. 

What do stockbrokers do?

So, we’ve answered one big question - what are stockbrokers? The next logical thing to do is to learn what they do, isn’t it?. The main role of a stockbroker is to obtain the buy orders and sell orders and execute them. In other words, they’re the middlemen who make it possible for traders to buy and sell shares on an exchange. For instance, if you want to invest in the share market, you need to open a trading account with a stockbroker. This account makes it possible for you to buy and sell shares and other securities.

Each time you wish to trade on the exchange, you need to log into your trading account through any one of the many portals supported by your stockbroker. Angel Broking, for example, is a full-service broking partner that offers a mobile application, a web trading platform and a desktop application through which you can place your orders and do so much more.

Once you place your buy or sell order, your stockbroker receives the instructions pertaining to that order, such as the company whose shares you wish to buy or sell, the number of shares that you wish to trade and the price at which you wish to carry out that transaction. The broker then executes your order, depending on the market conditions.

In exchange for performing this service, share brokers charge a fee from traders and investors for each order that they place. This fee is known as a brokerage.

Types of stockbrokers

Depending on the kind of services they offer and the kind of brokerage that they charge, stockbrokers can be either traditional brokers or discount brokers. Let’s get to know them better.

Traditional or full-time stockbrokers

Traditional brokers offer a comprehensive range of services that include securities trading, retirement planning, investment advice, portfolio management and more. These brokers go through intensive training programs to prepare for the range of services they offer. In exchange, they may charge a significant amount as a commission for their services.

Full-time brokers are ideal for investors who are seeking personalised support services. They’re also good for people with large volumes of investments and for people who participate in the markets regularly. The brokerage or commission charged by traditional share brokers are generally levied as a percentage of the value of the securities traded. In India, this commission generally ranges between 0.25% and 0.75%.

Let’s look at an example to understand this better.

• Say you opt for a traditional stockbroker and place a buy order through them.
• And say the order is for 100 shares of a company, to be bought at Rs. 500 per share.
• The transaction value then comes up to Rs. 50,000 (10 times Rs. 50).
• If your broker charges commission at 0.50% of the transaction value, you’ll need to pay Rs. 250 as brokerage/commission.

Discount brokers

Perfect for the new-age investor who prefers to do everything online, with the click of a button, discount brokers are online stockbrokers who offer accessible and affordable services to traders and investors with varying levels of experience. If you’re just beginning your trading journey, you may find the services of a discount broker ideal for your requirements.

Some of the services offered by these brokers include stock brokerage, passive management of your portfolio and mutual fund-related services. These brokers also generally charge commission/brokerage as a flat fee for each transaction. In India, the general range of brokerage levied by discount brokers extends from Rs. 10 to Rs. 20 per order.

Let’s look at the same example we saw before to understand this flat fee better.

• Say you opt for a discount stockbroker and place a buy order through them.
• And say the order is for 100 shares of a company, to be bought at Rs. 500 per share.
• The transaction value then comes up to Rs. 50,000 (10 times Rs. 50).
• However, irrespective of the value of the transaction, you’ll need to pay the flat fee charged by the stockbroker, which, in this case, is say Rs. 20.

Bonus pointer: Angel Broking offers the services of a full-time broker at the prices of a discount broker. How cool is that!

How do stockbrokers help you with company analysis?

You’ve seen how important it is to analyse businesses and companies before investing in them. Stockbrokers also do their bit in helping you with this kind of company analysis. They offer a wealth of information on the companies listed on the stock exchanges. In addition to this, many stockbrokers also periodically release analyst reports, which are prepared by third-party experts. Reports and information like this can prove to be invaluable for investors like you, who are keen on understanding companies and their businesses.  

Things to keep in mind before choosing a share broker

Navigating the plethora of choices before you can be a tough job. But with a little bit of help, you can easily find the right broker for your trading requirements. Here are some things that need to keep in mind before choosing a stockbroker. 

• The kind of broker you want to partner with, whether full-time or discount
• The stockbroker’s background
• The brokerage and the structure of the fees levied by the broker
• The kinds of trading platforms they offer
• The level of customer support they provide

Wrapping up

With these important areas covered, it’s time to venture into the next step of company analysis. And this stage involves getting to know the financials of the company. What are the financials you need to look into? That’s just what you’ll learn in the next chapter of Smart Money.

A quick recap

• Stockbrokers are financial intermediaries who make it possible for investors and traders like you to buy or sell shares on a stock exchange.
• The main role of a stockbroker is to obtain the buy orders and sell orders and execute them.
• In exchange for performing this service, stockbrokers charge a fee from traders and investors for each order that they place. This fee is known as a brokerage.
• Depending on the kind of services they offer and the kind of brokerage that they charge, stockbrokers can be either traditional brokers or discount brokers.
• Many stockbrokers also provide extensive coverage of companies on their website and often even release analyst reports periodically, thus helping you with company analysis.
• Before you choose a broker, consider the range of services they offer, their background, their fee structure, the trading platforms they provide and their customer support.