What is brokerage?
In this week's issue of intro to investing, we will be discussing brokerage, what it is, and why it is required.
A brokerage firm or company is a firm that acts as a middleman in a transaction, connecting buyers and sellers to complete transactions on various financial instruments, mainly stocks, bonds and options. Of course, these services are never free, and many brokers charge fees or commissions when transactions are completed. Recently discount brokers such as Robinhood have gone commission free. This is possible since customers' orders are sold to third-party market makers who fulfil these orders. Brokerage is required to access the markets; without a broker, you cannot trade stocks, bonds and other securities.
Types of Brokerage
The two main types of brokers are online brokerages and full-service brokers. Online brokers allow investors to place orders on their automated network, which handles the buying and service process. No advice is provided to the investor, so the choices are solely up to the investor and are more suitable for investors confident in their market knowledge. Traditional full-service brokers offer a wide range of services beyond the middleman services. Full-service brokers provide advice on buying and selling securities, market research, and recommendations and also create tailored investment plans that meet the client's objectives. Fees and charges on full-service brokers tend to be higher than that of online brokers due to this fact.
Summary
Choosing the right broker for you is crucial for most investors; without one, you will be unable to access the markets. Choosing a broker that aligns with your investment goals, market knowledge, and investing style will require a lot of research and consideration. This may be difficult and time-consuming, but it is crucial for maximising your hard-earned money. Some good resources and information about making informed choices while choosing will be linked at the bottom of this article.
Brokerage choice is crucial for all investors; without one, you cannot access the markets. Making informed decisions that match your objectives and knowledge will be essential to being a successful investor. It will ensure that you get the most for your money.
Further Reading