What is Stock Brokerage?

A stock broker is a financial market representative whose main job is to execute buying and selling orders of stocks and securities by an investor. As per the rules and regulations of trading an individual investor cannot trade in stocks directly. This is why they need broking services that are registered with a well-recognized stock exchange like the National Stock Exchange or the Bombay Stock Exchange.

A stock broker acts as a middleman between the investor and stock exchange with the power to buy and sell stocks and securities in a stock exchange on the investor’s behalf. In order to execute an investor’s purchase or selling demands, a stock broker levies a certain amount of fees or commission. This charge may vary from broker to broker, for instance, discount brokers usually charge a flat fee of roughly?10-?20 for every transaction whereas full time brokers usually charge a small percentage of the traded value as commission.

Why Are Stock Brokerage Services Required?

While purchasing stocks through brokers or an intermediary may sound inconvenient, there are many advantages of having stock brokers. For starters stock, brokers are highly regulated by SEBI or otherwise. The market regulator closely evaluates anyone who applies for a broking license and also keeps a close watch on existing brokerages. SEBI’s main aim behind monitoring brokerages is to protect the investor’s interests.

Further, while servicing clients brokers are supposed to maintain a standard of conduct based on the "suitability rule". This rule states that there has to be a reasonable ground for recommending a specific investment. This ensures that brokerages do not take undue advantage of investors by encouraging them to invest pointlessly.

Brokerages also help investors with any legal or regulatory formalities ensuring that the paperwork for inventors is simple and easy for them to understand. Apart from this brokerages maintain a track record of all your transactions which ensures that all your money is well protected and can be tracked easily.

Investors also tend to rely on brokerages for market insights and investment recommendations, the extent of support offered with regards to this varies from brokerage to brokerage. However, most brokerages provide excellent technology that help investors in getting excellent marketing insights and consequently making investment decisions.

Types of Stock Brokerages

Based on the range of investment services that brokerages offer, and the fees they charge stock brokerages can be categorized into various types. Here are the various types of stock brokers:

Traditional or Full-service brokers: A full-service broker provides a wide array of services to their clients. These services include wealth management, active portfolio management, retirement planning, big purchase planning, etc. Most full-service brokers offer customized support by understanding their client’s investment goals, risk appetite, and challenges. Clients with large holdings can even choose to engage dedicated portfolio managers to handle their portfolios. Most full-service brokers also have offline offices so that clients go and meet experts if they have any doubts.

Full-service brokers also provide financial advisories and educational material with regard to the changing market trends. They also explain the risks associated with any tips that they offer. However, their tips tend to be reliable as they have an in-house team to conduct market research and compile regular market research reports. However, one of the main drawbacks of full-service brokers is their high commission on each transaction.

Discount brokers: Discount brokers also execute different types of trades on behalf of their clients but at a much-reduced fee in comparison to Full-service brokers. However, they do not offer any investment advice or portfolio management services. They provide their clients with online trading platforms that are high-tech-driven and help you execute your purchase or selling orders instantly. While discount brokers do not give any direct investment advice, the latest platforms offer hundreds of charts and other tools that will help you analyse the market on your own.

These are broadly the two main brokerage services in India. Here are a couple of differences between them.

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