A broker is an individual or an established company working on behalf of a party. In most cases, the party is a customer interested in a security exchange. Since securities exchange regulations require a customer(broker) to be a member of a registered firm and only accept orders from them, it is impossible for individual clients to buy and sell shares without a broker. Brokers mainly earn from commission and fee after a successful transaction.
What do brokers do?
Other than planning and executing a client's orders, brokers fan out their services beyond selling and purchasing. A cfd broker like plus500 do detailed research and market analysis on different situations to feed their customers with accurate intelligence on the market status. Depending on the information received from a broker, customers may decide whether to pursue available investment options or not. Brokers also cross-sell other services and financial products available at their disposal- if a private client has a tailored solution/ product a wealthy customer may be interested in, the broker will swing into action and take the deal to facilitate exchange. Brokers are essential in keeping the market liquid by buying online stocks not on behalf of the customers but for themselves as part of regular business. Here, brokers build a portfolio by speculating on stocks- they buy shares at a low price and hold them expecting their prices to increase in the future to sell at a profit. However, the law dictates that brokers should disclose whether they are principles (sell shares) or intermediaries(facilitate transactions) to a customer to avoid double profiting from both ends of a transaction.
How does a broker make money?
As already mentioned above, brokers (xtb broker for example) charge a fee, receive commission or benefit from speculative transactions. Depending on the firm and type of the transaction, brokers always vary the fee they charge after executing trades for customers. There are two different ways of calculating a broker's fee; flat rate and percentage of the transaction. A well-established brokerage firm offers different services and charge less than 2% of the total money involved in the transaction. In contrast, brokers using flat rates charge anywhere from hundreds to thousands of dollars per transaction. Conflict of interest in brokerage firms In the past, brokers worked within their limits and avoided any conflicts whatsoever. But with the current competition, technology, and many investment options, conflict of interest is part and parcel of transactions, and customers may end up making losses. Here is an example of conflict of interest; A dually registered brokerage firm majoring in buying and selling of share or facilitating transactions often confuse customers with the services and advice they are offering. If your brokers advise you to buy stock, are they doing it in your best interests, or are they sellers who are after profit? It is a daunting task differentiating these two conflicting services; hence, ask before you move on with the deal.