A stockbroker is a licensed financial professional who executes securities transactions, primarily equities, on behalf of clients for a fee or commission.
Although there are no strict educational requirements for stockbrokers, most of them typically have at least a bachelor’s degree in finance or business administration. Brokers are expected to have knowledge of economic principles, relevant financial laws and regulations, financial forecasting, and wealth management.
Stock broker license
U.S. brokers must pass the Securities General Representative Exam, or Series 7 exam, to obtain the registered representative designation. All applicants must already be employed by a brokerage firm in some capacity related to traditional brokerage services.
Origin of the stockbroker
Before the development of electronic trading, investors had to maintain a relationship with a broker who traded the markets on their behalf. Due to the high cost of maintaining these relationships with customers and executing operations in the markets. Only wealthy individual investors and financial institutions had access to markets through brokers.
However, the development of electronic trading has made the markets accessible to anyone with an Internet connection. Most brokerage services are now performed electronically.
Stockbrokers in contemporary finance
Although the proliferation of electronic trading has led to the automation of most brokerage services. There are still financial professionals who act like stock brokers in contemporary finance.
Some wealthy investors who are not financial professionals continue to use the services of brokers.
Although these investors may consider that they have the appropriate knowledge and experience to operate directly in the markets, rather than using the services of a wealth manager. They may still think that they need advice and guidance in some or all of their operations.
For these clients, stockbrokers can provide information on potential trades and their execution. To which individual investors would not otherwise have access.
Many of these wealthy individual investors also value the personal client relationship that brokers maintain.
The future of brokerage services
The development of the Internet may have led to the gradual decline of traditional brokerage services provided by financial professionals such as brokers. But it is the rapid development of automation and sophisticated trading software that is transforming the financial services landscape.
Whereas before only the wealthiest people were considered worth representing even on traditional exchanges. Stock brokers now offer a wide range of services to investors with only nominal amounts to invest.
Even retail investors now have access to a wide range of complex and exotic securities, and advanced financial information and analysis. As well as sophisticated analytical tools, they are now available for free.
The cost of keeping financial professionals in brokerage services can rarely be justified in the age of automation and digitization. Most investors prefer to have direct access to the markets through digital trading platforms and do their own research and analysis on potential trades.
The areas where brokers retain their value are maintaining relationships with clients. And the execution of the largest and most complex operations.
The broker and trading
Most day traders will find that they rarely, if ever, need the services of a traditional broker.
Day traders focus on technical analysis or short-term events, over which brokers have little influence. Additionally, day traders tend to keep their trade sizes small enough to have minimal impact on the market. Many trading platforms now offer advanced order execution systems to effectively block trades.
Day traders may occasionally deal with brokers when trading dark and exotic stocks. The markets for these securities may be over the counter (OTC). The broker’s trading platform may not have the means to place an order electronically.
Additionally, these securities may have legal and accounting requirements on which a traditional stockbroker is well placed to advise.
The introduction of the Internet caused the initial decline in the need for the services of traditional brokers. That has increased rapidly with the increasing automation and digitization of trading.
However, traditional broker-dealer services continue to play a role in executing large and complex transactions. In maintaining personal relationships with clients, which are still valued by some investors.
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