1: broker definition
2: how the broker works
3: broker vs market maker
4: example for brokers
Opening information:
Broker means commission maker on selling any of the items from buyer to sellers.
The buyers are the ones who request the broker and sellers are the ones who accept the price of the items and the brokers are the middlemen to run this operation.
This article contains information about who and, how they work in the stock market, what the difference between a broker and a market maker, and finally about examples of brokers.
1: broker definition
People who bought real estate properties in the right place at the right time would make millions of dollars.
On the other side, the real estate industry does business and makes money from properties and lands.
Where it is hard to sell and buy things, this makes the real estate investors or business Investors sell or buy any asset in the expected amount of time.
Any business or any investment is huge to acquire and needs strong and large selling to raise or sell the properties including land.
If the real estate industry needs more buyers and the right sellers to run their business successfully, they need more people to promote their all properties.
Once the properties are not sold after the marketing or promotion then all the money they spent on marketing and promotion becomes useless.
That is where the broker came from, the broker helps to bring the business buyers and sellers together to close the deal.
Unlike marketers and promotion takers, the commission makers which means brokers only make money or receive commission once they sell the items or after the close of any deals between the buyer and seller.
So brokers became very important to all types of businesses and markets. Now let’s dig into how special broker works in the stock market.
2: how the broker works
Before anyone who wants to become a broker must register with the Financial Industry Regulatory Authority (FINRA).
The FINRA is the one that approves and licenses the broker of the stock market. But to get a licensed stock broker the broker must meet the standard or requirements of the Security and Exchange Commission SEC.
The registered broker has the authority to sell the specific Securities in the registered stock exchange.
The broker is the one who helps all the big stock-issuing companies to raise capital very fast. Because the stock exchange would not bring all the millions and billions of Investors together.
Every small Investor wouldn’t reach the stock exchange around the world. It’s hard to run the operation of the stock market because of a lack of availability.
The broker helps all the small to big Investors to register with them and has a brokerage account to buy and sell any securities they wish without visiting any exchanges.
But no matter what, the broker must have to register with any of the stock exchanges around the world to available the necessary stock or debt instruments available to their investors.
They cut the commissions based on the investor investment amount.
The brokerage fees percentages are the same but the amount varies.
The charges depend on the broker. Some might be a discount broker which charges less and give low support services, others might be full-time brokers which charge high and give great full-time support.
On the other side, fixed or online brokers would charge fixed amounts without a certain percentage for any big amount of investments.
Most people confuse the broker and market maker. So let’s dig into the difference in it.
3: broker vs market maker
Brokers are the commission makers but market makers are not commission markers, instead, the market makers make the market by giving liquidity to their selected pairs.
If a broker is registered with a certain exchange, they would only have the authority to give a platform to their investors on their registered exchange.
But market makers do not make money on commission instead they give liquidity and earn on a spread.
So the key difference between the broker and market maker, the broker earns on commission and the market maker earns on spread.
To make you more clear about the stock broker, let’s dig into one example.
4: example for brokers
Let’s say Mr.A bought 200 Shares of stock from McDonald’s. Say the Total shares are worth 20,000 dollars.
And the brokerage fees are 3% of the Investment. Which means 3% of the amount for the $20,000 is $600.
Or if Mr.A chooses the fixed broker and there are no percentage fees instead it’s fixed fees for the investment of 60 dollars.
It doesn’t matter if the investment would be $20,000 or 1 million dollars, the fee of commission is only 60$ once Mr.A buys the stock and $60 once Mr.A sells the stock.
Market rule: #100196
Brokers are one of the market participants who came into the market rule, but making investment decisions depends on what and which brokers say or tell what would be highly risky. You are completely responsible for your actions.
If any cheating or fraud from the registered broker by the Security and Exchange Commission (SEC) you could raise the complaint to the SEC.
If your investors are not comfortable or align investing with based on market rules please learn about how to regulate your investments under your control with the use of Rule investing.