Role of Brokers in Financial Markets
A broker could be an individual or a firm that acts as an intermediary between two parties to carry out a deal. The broker charges a commission for his work which is known as brokerage.
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A broker is usually someone who buys and sells things on behalf of others. They are intermediaries of the two parties. By seeking a counterparty for both buyers and sellers, the Broker market is operated. They earn money by charging their clients a fee or commission on each order that they execute. Brokers know best their market, they have experience not just in processed trading but also in market behavior. Stock markets were traditionally brokered. On the trading floor, stockbrokers will try to find a suitable counterparty for their clients. This is the stereotypical picture that used to be recognized for Wall Street, with men and women in suits shouting to each other while carrying pieces of paper noting orders from their clients. Broker markets are used for all sorts of securities, especially those with initial problems. For instance, an IPO would typically be launched via an investment bank, which appoints brokers to acquire subscription. For new bond issues, this is also similar. Lastly, the brokered markets are often ideal for custom or customized products.
Types of Broker
- Insurance Broker
Insurance brokers vary from agents in that the broker operates not for a specific insurance firm but for the customer. Brokers help clients evaluate a wide variety of insurance plans to find the right fit for them. The policy may include health cover, life insurance, or other insurance products required. Licensing criteria differ between states, but usually involve an examination that certifies expertise in the forms of insurance to be provided by the broker plans.
- Mortgage broker
Mortgage brokers direct clients through the selection process of a suitable mortgage plan with competitive plan offerings. They also provide mortgage and real estate financing advice. Their role is to find a mortgage package that meets the criteria of the borrower and to help the customer manage and complete their mortgage application form. Mortgage brokers negotiate over 80% of home loans issued in the U.S. Banks go through brokers to outsource the job of identifying and qualifying borrowers efficiently.
A stockbroker is a person or company which, on behalf of another person or company, buys and sells stocks and attempts to match buyers and sellers any people seek advice and pay for a stockbroker’s services to help them make informed decisions about their investments, with a licensed stockbroker’s professional and engaging guide.
- Forex broker
Forex brokers are businesses or individuals that assist individuals or firms in foreign-exchange transactions. Forex brokers make money from pip or “spread.” A spread is the currency’s minimum price increase.
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Using a broker would help tremendously an investor looking for an investment path, as brokers tend to be more up-to-date with market trends and happenings. In addition, as per law, the broker has a fiduciary duty to advise the client in the best interest of the customer. The broker’s role is constantly changing and is proving to be a boon for the financial industry’s future. We can’t refute the fact that brokers play a very important role in the financial system.
Author: Akshay Patil
About the Author: When I write I learn something new which acts as a value addition towards my career in finance.