An intermediary who connects a seller and a buyer to facilitate a transaction
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Written byCFI Team
What is a Brokerage?
A brokerage provides intermediary services in various areas, e.g., investing, obtaining a loan, or purchasing real estate. A broker is an intermediary who connects a seller and a buyer to facilitate a transaction.
Individuals or legal entities can act as brokers. The broker performs its actions according to the client’s instructions. The broker is then compensated, receiving either a flat fee or a certain percentage of the transaction amount.
Summary
- A broker is a mediator between the buyer and the seller and who receives a payment in the form of a commission.
- The main function of a broker is to solve a client’s problem for a fee. The secondary functions include lending to clients for margin transactions, provide information support about the situation on trading platforms, etc.
- The three types of brokerage are online, discount, and full-service brokerages.
Functions of a Brokerage
The main function of a broker is to solve the client’s problems for a fee. However, there are other broker functions existing today. A brokerage can:
- Execute trades on the financial markets at the expense of the customer and on his behalf.
- Provide information support about the situation on trading platforms, sending notifications about quotes and trading mechanisms.
- Provide information about other market participants, making the correct decision for the client to conduct the transaction.
- Lending to clients for margin transactions.
- Storage and protection of customer data.
- Creating a technical base to make transactions on the exchange.
Certainly, broker companies carry out a broader activity besides mediation. Without a broker, the financial market itself would not exist.
Types of Brokers
Brokers can be one of three types:
1. Online brokers
A new form of digital investment that interacts with the customer on the internet. Online brokerages offer the main advantages speed, availability, and low commissions.
2. Discount brokers
A discount broker is a stockbroker who performs buy and sell orders at a reduced commission rate.
3. Full-service brokers
A full-service brokerage provides a wide range of professional services to customers, such as tax tips, investment advisory, equity researching, etc.
Different Brokerage Specializations
Let’s take a closer look at the main specializations of brokers and their respective features:
1. Stock brokerage
A stockbroker is a professional intermediary on stock or commodity markets who sells and buys assets in the interest of the client on the most favorable terms.
Operations on the exchange market are difficult for outsiders and require a certain number of special approvals and permissions to finalize transactions. It is useful to address professional participants on a stock exchange, such as to brokers.
2. Credit brokerage
Credit brokers are specialists with the necessary information and professional contacts with credit institutions. They provide individual assistance to clients in selecting optimal lending options. They also assist with obtaining the needed financing, its conversion, and repayment, etc.
3. Leasing brokerage
A leasing broker is a specialist who is similar to a credit broker but in the field of leasing equipment. A leasing brokerage’s main clients include legal entities and commercial organizations.
4. Forex brokerage
A forex broker is an intermediary who provides access to the forex currency market. Since the forex market is open only to a certain number of organizations, access to it for individuals is possible only through the mediation of forex brokers.
5. Real estate brokerage
A real estate broker searches for buyers and sellers of real estate, e.g., warehouses, offices, retail, as well as residential properties. A real estate broker receives a certain percentage commission of the real estate transaction.
6. Business brokerage
A business broker offers its services for buying and selling an existing business. They usually deal with a business valuation, take part in negotiations with potential buyers, and generally help in the sale of the business.
7. Insurance brokerage
The main goals of contacting an insurance broker are as follows:
- Mediators draw up insurance policies at a discount.
- It saves time required to fill out an insurance contract.
- It allows searching for better offers from insurers.
Related Readings
Thank you for reading CFI’s guide on Brokerage. To keep learning and advancing your career, the following resources will be helpful:
