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5 Facts You Should Know About Brokerage Definition

Good day traders! Today, we are going to give you an in-depth understanding of brokerage definition and facts that you should know about it.

If you want to learn more about trading, check out our latest modules here and get ready to equip yourself with knowledge and tips for FREE.

What is a brokerage?

A brokerage is a firm or company which facilitates the transaction by acting as a middleman that connects buyers and sellers. These companies earn by means of a commission after a successful transaction. For instance, upon the execution of a trade order for a stock, the investor pays a transaction fee. The payment is due to the efforts of the brokerage in completing the trade.

Now, let’s us break further down “brokerage definition”

Brokerage Company

Investors have a wide range of options in choosing a brokerage company. In most cases, an investment brokerage has the authority to trade securities for buyers and sellers. Thus, the type of services a person may demand is dependent on their level of sophistication, market knowledge, risk tolerance and comfort in trusting other in handling their money.

Investors should choose a company with services that are with the most economical fees. Before selecting and creating an investment account, make thorough assessments of the brokerages by doing some research and comparing their products, benefits, customer service, fees, quality of services, and reputation.

There are various types of brokerage firms in financial markets. Below are the five types of brokerages and facts that you should know about them.

Full-Service Brokerages

It is commonly known as traditional brokerages. Full-service brokerages offer a range of products and services from tax advice, financial consultations, estate planning, and money management. Moreover, these firms provide the latest stock prices, quotes, and research on economic conditions and market analysis. Consequently the brokers in this brokerage are highly trained and credentialed professionals. It’s possible that they can form personal relationships with their clients. They might charge a fee, commission or both.

Discount Brokerages

This type of brokerage charges lesser than the full-service brokerage. Although, it might provide fewer ranges of services, and it is not possible to form personal relationships with their clients. The quality of advice from discount brokerage brokers is dependent on the size of account of an investor.

Robo-advisers

They are digital-only online investment platforms which utilize algorithms for the automatic implementation of trading strategies on behalf of their clients. Therefore, the allure of this brokerage is not merely automation; it gives very low fees and low account balances needed to get started. Typically, these companies charge no annual fee, zero commissions and you can start right away with a few dollars.

Independent Brokerages

These companies are unassociated with any mutual fund company. However, they function similar to full-service brokerages. Moreover, the brokers can sell the products that are in their client’s best interest. In today’s time, the most common example of brokers under this type is the Registered Investment Advisers (RIAs).

Captive Brokerages

Unlike independent brokerages, they are associated with a specific mutual fund or insurance company. Further, they may appear biased since they have contracts with certain providers to sell only their products. Thus, they might sell the products that are not in their client’s interest.

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