Stock Broker
A stock broker or stockbroker is a qualified and regulated professional who buys and sells (trades) shares (in other words, stocks) and other securities through market makers on behalf of investors.
Requirements
In order to become a stockbroker in the United States, a candidate must pass the General Securities Representative Examination (also known as the "Series 7 exam").
In the UK brokers are required to pass the SII (Securities and Investment Institute www.sii.org.uk) Certificate in Securities, this qualification is achieved by passing two exams: Either Unit 1 Financial regulations or Unit 6 Principles of Financial Regulation for MiFID compliant retail trading, and either Unit 2 Securities, Unit 3 Derivatives or Unit 4 for both Securities and Derivatives. Passing Unit 1 or Unit 6 indentifies individuals as having attained FSA Approved Person Status.
Services provided
A transaction on a stock exchange must be made between two members of the exchange — an ordinary person may not walk into the New York Stock Exchange (for example), and ask to trade stock. Such an exchange must be done through a broker.
There are three types of stockbroking service.
- Execution-only, which means that the broker will only carry out the client's instructions to buy or sell.
- Advisory dealing, where the broker advises the client on which shares to buy and sell, but leaves the final decision to the investor.
- Discretionary dealing, where the stockbroker ascertains the client's investment objectives and then makes all dealing decisions on the client's behalf.
In addition to actually trading stocks for their clients, stock brokers may also offer advice to their clients on which stocks, mutual funds, etc. to buy.
History
Philadelphia was the centre of American finance during the first forty years of the new United States. In 1790, the country's first stock exchange was founded there and Chestnut Street was home to the nation's most powerful financial institutions. However, in the 1820s a shift to New York City began and for more than one hundred and fifty years Wall Street has been synonymous with the stock brokerage business. Some sources suggest that historical top-level brokers and a number of other firms rose to prominence over that time, with the top-ranked brokerages in the early 1950s being:[citation needed]
1. Merrill Lynch
2. Paine Webber & Company
3. Morgan Stanley
4. Goldman Sachs
5. Bear Stearns
Since the 1980s stockbroking firms have also been allowed to be market makers as long as the appropriate Chinese walls are put in place.
With the advent of automated stockbroking systems on the Internet the client often has no personal contact with his/her stockbroking firm. The stockbroker's system performs all the stockbroking functions: it obtains the best price from the market, executes and settles the trade.
Today, most of the once well-known corporate brand names including mid-sized firms such as Smith Barney have been swallowed up by global financial conglomerates. Only a few firms remain independent, such as Edward Jones Investments, Stifel Nicolaus, Oppenheimer & Co, JP Turner & Company and Raymond James. Discount brokers (such as E*TRADE, Scottrade, TD Ameritrade, and Charles Schwab) have taken a large share of the business by offering highly discounted commissions. Discount brokers may offer limited advisory services, but their primary focus tends to be servicing self directed retail accounts.
Similar roles
Roles similar to that of a stockbroker include investment advisor, and financial advisor. A stockbroker may or may not be also an investment advisor, and vice versa.
The Certified Financial Planner designation initially offered by the American College in Pennsylvania is considered by many to be the next educational step a stockbroker can take in order to be considered a legitimate and ethical financial consultant. Though not strictly true, it is still vital to assert the authority taken.[citation needed]
Acting as a principal
Stockbrokers also sometimes or exclusively trade on their own behalf, as a principal, speculating that a share or other financial instrument will increase or decline in price. In such cases the term broker makes little sense and the individuals or firms trading in principal capacity sometimes call themselves dealers, stock traders or simply traders. [A stock broker is just the main part of being a City Trader. Other types of City Trading include working in the Foreign Exchange.
This article is issued under the terms of GNU Free Documentation License. It uses material from entry Wikipedia: "English".
