Stock broker
From Free net encyclopedia
A stockbroker is a person (or company) who buys and sells stocks on behalf of another person (or company).
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The point
For a deal between two people, no broker is needed. A broker is useful in trying to match up with other buyers or sellers. Especially, a transaction on a stock exchange must be made between two members of the exchange. For example, a typical person may not walk into the New York Stock Exchange and ask to buy or sell stock (unless of course such person is a member of the exchange). It must be done through a broker.
Related thing
A different role is described by some terms such as investment advisor, financial advisor, and probably many others. A stockbroker may or may not be also an investment advisor. Similarly, investment advisor may or may not be a stockbroker.
The Certified Financial Planner designation initially offered by the American College in Pennsylvania is considered by many to be the next educational step a stock broker can take in order to be consider a legitimate & ethical financial consultant.
Acting as principals
Stockbrokers also sometimes or exclusively trade on their own behalf, as a principal, speculating that a share or other financial instrument will increase or decline in price. In such cases the term broker makes little sense and the individuals or firms trading in a principal capacity sometimes call themselves dealers, stock traders or simply traders.
History
Since the 1980s stockbroking firms have also been allowed to be market makers as long as the appropriate Chinese walls are put in place.
With the advent of automated stockbroking systems on the Internet the client often has no personal contact with his/her stockbroking firm. The stockbroker's system performs all the stockbroking functions: it obtains the best price from the market and executes and settles the trade.
Today, most of the once well-known corporate brand names including mid-sized firms such as Smith Barney have been swallowed up by global financial conglomerates. Discount brokers (such as E-Trade, Scottrade, and Ameritrade) have taken a large share of the business by offering highly discounted commissions, but the companies do not offer investment advice in return--all they do is execute orders.
Things one should know before consulting a Stock Broker
Using a stock broker for active management of a Stock/Mutual Fund Portfolio is totally unnecessary when a passive management alternative is available for long term investing within the confines of a Tax-Sheltered Retirement Accounts. However, many prefer to use and pay for the services of a broker because they feel more comfortable making decisions about their finances with the interactive guidance of a licensed advisor.
When using a stock broker for financial guidance, one must be made aware that they do get paid on a commission, based on the stock/mutual fund they sell be it from the following: Class Distinction/ Operating Expense Fees/ Services Fees/ Shareholder Fees. Thus a conflict of interest arises concerning a stock broker who offers his/her service as a financial planner, because their revenue is generated as a direct result of your investment in the stock/mutual fund that they broker to you. Thus your return on investment is not as great, and the advice they give you might not be in your best interest. However, some mutual funds and stocks can only be purchased through a broker: in such cases their services are required to purchase the financial instrument in question.
Cases
The following is the case in the UK: When acting as an agent, the stockbroker charges the client a flat fee and/or a percentage-based commission for undertaking the trade and the price quoted the client must be the best price available in the market. When acting as a principal, the trade could be with another market participant or one of the stockbroker's clients. When trading in a principal capacity with a client the broker is obliged to inform the client and no commission is charged.
The following is the case in the US: When acting as an agent, the stockbroker typically charges the client a flat fee and/or a percentage-based commission for undertaking the trade and the price quoted the client must be the best price available in the market. When acting as a principal, the trade could be with another market participant or one of the stockbroker's clients. When trading in a principal capacity with a client the broker informs the client and a charges the client a markup or markdown from the prevailing market price.
Other jurisdictions are thought to have similar rules.
Terms
Front office This is a description of the part of the firm that is "client facing". The sales staff, brokers and traders are part of the front office. Functions of the front office include acquisition and entry of orders, fulfillment of the orders, and all the regulatory reporting for the orders.
Back office The back office is where the clearance processing of the trades is done. Transfer of securities and money and the tracking of "failure to deliver" is handled. Securities lending for a brokerage firm, wherein shares of a security that is being sold short are located to ensure they can be delivered, is usually included in the back office as well.
Famous Stockbrokers
In the United States, Philadelphia was the center of American finance during the first forty years of the new United States. In 1790, the country's first stock exchange was founded here and Chestnut Street was home to the nation's most powerful financial institutions. However, in the 1820s a shift to New York City began and for more than one hundred and fifty years Wall Street has been synonymous with the stock brokerage business. A number of firms rose to prominence over that time with the top-ranked brokerages in the early 1950s being:
- Merrill Lynch & Co. Inc.
- E. F. Hutton & Co.
- Bache & Co.
- Paine Webber & Company
- Francis I. DuPont & Co.
- Dean Witter Co.
Individuals associated with the brokerage business:
- Larry "Buster" Crabbe - Actor and former Olympic Swimmer Crabbe became a stockbroker and businessman after a career in film.
- Brian Dennehy - An actor, Dennehy worked as a broker for a time at the same firm as Martha Stewart.
- Edward Francis Hutton - Founder of the firm known for its slogan: "When E. F. Hutton talks, people listen." In the late '20s and early '30s, Hutton was married to cereal heiress Marjorie Merriweather Post. Hutton's daughter with Post was actress Dina Merrill, the one-time wife of actor Cliff Robertson. Hutton's namesake firm imploded into bankruptcy in the 1970s.
- Michael Milken - The financier came to fame at Drexel Burnham Lambert in the 1980s.
- George Murphy -- Silent film and early talkies star Murphy worked for a time as a Wall Street runner.
- William A. Paine - co-founder of Paine Webber.
- Hemish Shah - Late English poker player, who left stocks for poker, going on to win a World Series of Poker bracelet.
- Martha Stewart - After she gave up modelling in the late 60s, Stewart worked as a broker on Wall Street for 7-8 years before launching her lifestyle business.
- Jimmy Wales - Founder of Wikipedia.
See also
es:Broker fr:Agent de change id:Pialang saham it:Broker lt:Brokeris nl:Broker pl:Makler ru:Брокер (рынок ценных бумаг) zh:证券经纪人