A brokerage firm is basically the company that facilitates the connection of a buyer and seller to enable them carryout a transaction. It is essentially the vehicle a broker uses. He/she in turn earns their pay through a commission that will be earned when the transaction is successfully completed.
In financial investment, it is common to seek the services of a stock broker because they have made it their business to monitor and understand the financial market as well as market trends and they use this knowledge and experience to guide investors in maximizing their returns. They also have the authority to trade securities on behalf of the buyers and the sellers.
Here are 5 types of brokerage services.
#1 The full-service brokerage service
As the name suggests, the full-service brokerage firm does it all. It will offer you up-to-date stock prices, research and market analysis, consultation and planningas well as tax advice. Most firms will charge you a fee, a commission and sometimes both depending on the nature of the service offered.
#2 The discount brokerage service
As the name also suggests, a discount brokerage firm will characteristically charge you significantly lower than a full-service brokerage. It is however noteworthy that the depth of service will also depend on the size of your account as an investor. Generally, the services will cost lower because most will be conducted through a computerized trading system.
#3 The online brokerage service
An online brokerage firm will only offer a platform for you as an investor to conduct transactions for yourself. This is mostly done through a website. As a client, you can send an email or call the broker to ask questions or conduct a trade however, most will not offer you investment advice because it is not part of what they do.
#4 The captive brokerage service
This particular type of brokerage is not highly recommended because they often will not have an investor’s interests at heart. Because they have an affiliation to a certain mutual fund company, they will often be biased by persuading their clients to trade in mutual funds that their affiliate mutual company owns.
#5 The independent brokerage service
An independent brokerage firm functions in much of a similar way as a full-service brokerage. Because they do not have any affiliation to a mutual fund company, they tend to have an investor’s best interest at heart because they will not have a bias in the trades they recommend.
As an investor it is important to note that the commissions you pay to your broker will eat into your returns therefore you need to conduct proper research on fees, benefits, products and reputation of a broker before signing on the dotted line.
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