Brokerage Firm FAQs

What is a brokerage firm? A brokerage firm is a company that has the required legal permissions to indulge in the trading of securities. It also provides analysis and advisory services to clients.

Who are employed in a brokerage firm?

A brokerage firm hires traders and research analysts to work for them. Traders are authorized to sell securities on behalf of the firm and its customers. Research analysts? research stocks track companies and provide advice on whether to buy, hold or sell a particular stock. Most brokerage firms are publicly traded companies that also trade securities for their own profits.

How does a brokerage firm make money?

A brokerage firm sells its knowledge and expertise of the securities markets to its clients. They charge fees for acting as an intermediately between the buyers and sellers of securities. They also make money through proprietary trading.

What are the different types of brokerage firms?

There are three main types of brokerage firms.

Full service brokerage firm offers advice on investment strategies, research and news. Since these firms offer multiple services, their fees are also higher.

Discount brokerage firm is ideal for someone who is an experienced trader who makes his or her own decisions. Discount brokerage firms have lower commission costs than full service brokerage firms.

An introducing brokerage firm is one that specializes in futures markets and buy or sell orders on commodities exchanges through established firms that are clearing members of exchanges.

What are the licenses that a broker from any brokerage firm needs to have?

The licensing and training requirement for futures brokers is different from that needed for licensed stockbrokers. A futures broker needs to have a Series 3 license, while a Series 7 license is essential for a stockbroker. There are many brokers that have dual license so that they can deal in both markets.

What are the factors to keep in mind before hiring a brokerage firm?

One must ensure that the brokerage firm they hire has all the right licenses for trading in stocks and bonds and have the necessary clearance certificates. Those that want to trade directly using the Internet also need to find out whether the systems at the brokerage firms comply with current standards. One needs to be sure of the costs and fees, including any hidden costs of dealing with the particular brokerage firm. One also needs to find out the minimum account size that the firm accepts, the performance bond requirements, the handling of dispute orders and the track record of the firm.