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Getting to Know Brokerage and Types of Brokers

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by John Caroline · 7 min read
Getting to Know Brokerage and Types of Brokers
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To help our readers become more acquainted with what brokerage is all about and understand the terms surrounding it, we’ve provided a fully detailed guide on brokerage activity and brokers types.

The whole idea behind the term “brokerage” is the intervention of a middle man in a stock trading process. The commercial standard has placed importance on the existence of a middle man in a supply chain of goods and services. For ages, this standard has remained ideal for businesses and companies as it has proven to be a mechanism that facilitates an efficient trading experience as well as makes supplies get to final users quite easier than it would have been without an intermediary. In addition, the existence of intermediaries in any trading activity has helped significantly curtail the rate of fraud and manipulative operations. This is why brokerage and brokers are as important to stock traders as capital is to investors.

What Is Brokerage?

Brokerage is one of the vital tools in the financial market. Thus, it is correct to say that the financial market may not exist if there are no brokerage services. Hence, brokerage is simply the intervention of intermediary services between buyers and sellers of diverse financial instruments that facilitates an efficient trading experience. This can be represented by single regulated personnel or regulated companies usually regarded as brokerage companies.

In general, brokerage acts as a tool that helps to communicate more useful information on the concerned stocks to potential investors and buyers to help facilitate investment decision-making processes. Therefore, the stock market is often incomplete without brokers and brokerage entities as the need for them has become inevitable.

Functions of Brokerage

Brokerage has proven to be a very useful infrastructure to trade bargainers concerning the exclusive services it offers, usually in the stock market. Some of the functions of brokerage are as follows:

  • Remediating clients’ problems. The primary function which iterated the essence of brokerage is its ability to solve the problems of clients to a pretty extent. This is a major reason investors are best advised to utilize the services of a broker before purchasing any financial instrument.
  • Acting as an informant on trade potentials. As said earlier, brokerage services provide due information to clients on the potentials of a yet-to-be-executed trade. This information gives updates on more efficient trading mechanisms that are adaptable for a faultless trade encounter. The broker also provides investors with information regarding other participants, all of which enables the client to make good investment decisions
  • Performing trades on customers’ behalf. Sometimes a customer that hires the services of a broker might not be present at the execution of the trade. However, the broker is capable of doing the necessary in the absence of the client. Thus, brokers or brokerage companies execute trades on behalf of customers.

Different Brokerage Specializations

The functionalities of brokerage are not limited to the stock market as commonly known. The services of brokerage are relevant with diverse financial instruments. Thus, there are different specifications of brokerage which are dependent on the instrument involved.

  • Stock brokerage

This is one of the most popular areas that brokers specialize in. Stock brokerage refers to the intervention of legalized middlemen in the buying and selling of assets. The stock brokerage is only relevant in the stock and commodity market. Brokers who deal with the trading of assets and commodities are classified as stock brokerage. This makes provision for legitimate approvals needed to conclude transactions on stocks and commodities.

  • Credit brokerage

This category of brokerage specializes in credit institutions. Credit brokerage refers to special entities empowered to provide necessary information and tools which facilitate lending activities for clients. They act as intermediaries between credit institutions and customers who intend on hiring their service.

  • Leasing brokerage

Leasing brokerage refers to brokers who specialize in and operate within the space of leasing assets. It is a common practice for commercial organizations and legal bodies to lease properties or equipment they might not be able to purchase at once. Leasing brokerage provides specialists in the form of intermediaries who make the processes easier and better.

  • Forex brokerage

It is well known that access to the Forex market is quite restricted and limited to some validated organizations. Forex brokerage makes it possible for other individuals to utilize the Forex market through the Forex brokers. The intervention of Forex brokers is necessary for anyone who wants to reach the Forex currency market.

  • Real estate brokerage

Just like every other broker in other institutions, real estate brokerage makes provision for intermediaries who intervene in trading transactions between buyers and sellers of real estate. The real estate traded among the parties could be a property, a warehouse, an office, etc.

  • Business brokerage

Business brokerage refers to brokers who specialize in the sales and purchase of businesses. Existing businesses are sometimes placed for sale for different reasons, brokers in this field help intending sellers get interested buyers and negotiate on behalf of either party.

  • Insurance brokerage

These are brokers who focus on the insurance field. Insurance brokerage refers to intermediaries who assist potential insurers to make good insurance decisions. They do this by providing them with adequate information as well as helping them carry out the necessary activities for the process.

Brokers

Due understanding the term “brokerage” provides more insight into who brokers are and the services they render.

Brokers are specialists who operate as middlemen in activities executed for the trade of financial instruments. They intervene in activities regarding the purchase and sale of financial instruments. Sometimes, they negotiate on behalf of either party and execute some contracts on their behalf. They also make bargains as intermediaries and facilitate a smooth transaction process.

Types of Brokers

The financial market consists of diverse institutions which render different services and sell different commodities. Each of these institutions has brokers who operate just within their walls. As such, there are different types of brokers that depend on the areas they focus on. Below are some of the types of brokers.

    • Stockbrokers. People with an interest to buy stocks are restricted from doing this directly. Hence, stockbrokers are middlemen who buy and sell stocks and commodities in the stock exchange market.
    • Full-service brokers. These brokers perform multiple services in their special markets. They provide all necessary information on the intended trade and as well help clients to manage their finance.
    • Discount brokers. These are brokers who charge less for contracts because they carry out limited services compared to full-service brokers. They only deal with the execution of trades, they do not manage client’s finances.
    • Forex brokers. These are brokers who operate on behalf of people who intend to invest in the Forex exchange market. They help investors buy and sell foreign currencies.
    • Real estate brokers. The real estate brokers focus on the real estate industry. As a result, they operate as intermediaries between buyers and sellers of real estate properties.

Conclusion

To sum up, the intervention of brokers has caused the financial market to be more friendly with investors, companies, and other institutions. They execute trades on people’s behalf and as well as provide advice and necessary information to clients to make good investment decisions.

Although the idea of brokers in the financial market has made a lot of things way easier for investors, it is more important for investors to choose the right broker that would best suit his/her investment plan as the finances of investors are much accountable to the broker.

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FAQ

What is brokerage?

Brokerage is simply the intervention of intermediary services between buyers and sellers of diverse financial instruments to facilitate an efficient trading experience. 

What functions does brokerage perform?

Brokerage performs trades on customers’ behalf, remediates clients’ problems, acts as an informant on trade potentials.

What are the types of brokerages?

The brokerage classification includes stock brokerage, credit brokerage, insurance brokerage, real estate brokerage, business brokerage, forex brokerage, leasing brokerage.

Who are brokers?

Brokers are specialists who operate as middlemen in activities executed for the trade of financial instruments.

What are the types of brokers?

There are stockbrokers, discount brokers, full-service brokers, forex brokers, real estate brokers.

Who is a stock broker?

Stockbrokers are middlemen who buy and sell stocks and commodities in the stock exchange market.

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