Definition of a Securities Brokerage

Definition of a Securities Brokerage
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Understanding the securities broker or brokerage services definition would require you to learn what securities are and what brokers do or provide as services. However, these terms tend to be used within the investment world to refer to assets people want to buy and sell and the intermediaries that link investors to the investment markets.

Brokerage Definition: The Breakdown

Generally, a security is an asset or financial instrument that has value and is tradable. You can buy or sell it. And it includes bonds, stocks, Treasury notes and derivatives such as options and futures. In addition, it also includes oil-drilling program interests.

On the other hand, a broker is an individual or company that independently executes transactions on behalf of another party. In exchange, that intermediary will earn a commission or charge a fee. Therefore, securities brokers are intermediaries that facilitate the transactions between sellers and buyers of securities.

It is worth noting that brokers tend to represent either the buyer or seller in each transaction. Rarely do they represent both parties simultaneously.

Examples of Brokerage Services

The title of a broker depends on the asset classes they deal with. So, concerning the stock brokerage meaning, it refers to the provision of intermediary services between market exchanges (like NASDAQ) and investors who want to buy and sell stocks.

However, firms providing these services will also facilitate the trade of other securities such as mutual funds and bonds.

Other examples of brokerage services also exist, depending on various areas of specialization. These include:

  • Insurance brokerage services
  • Mortgage brokerage services
  • Real estate brokerage services
  • Forex brokerage services
  • Leasing brokerage services
  • Pawn brokerage services

Securities Brokerage Services: Primary Types

When looking for securities brokerage services, consider the range of services and how the broker executes their mandate before deciding. Below are the main types of security brokerage service providers.

1. Full-Service Securities Brokers

A full-service securities brokerage firm is a company that executes securities trades for its clients and also provides an array of supporting financial services. These additional services may include the provision of market research, retirement planning and tax advice. Because full-service brokers provide comprehensive securities brokerage services, they usually charge higher fees or commissions.

If you want to leave your investments to professionals altogether, these are the best types of brokers for you. However, you should prepare to pay charges for their tailored services.

2. Discount Securities Brokers

A discount securities brokerage firm executes trades on behalf of its clients but does not provide other types of financial services. As a result of their limited offerings, discount brokers tend to cost less. And their charges are usually in the form of a salary instead of a commission.

3. Online Brokers

Online brokerage firms enable investors to trade online with no face-to-face meetings. If you opt for online brokerage services, you do not need to phone your broker or trust them to decide for you. You can execute your trades while managing multiple positions if you like.

Since online brokers do not need huge brick-and-mortar offices, their fees tend to be lower. So, if you want greater control over your investment decisions while paying fewer fees, consider online brokerage firms.

4. Robo-Advisors

Robo-advisors are automated online investment platforms that utilize computer algorithms to pick assets and manage investment portfolios on behalf of their clients. These tend to mainly include ETFs and index funds.

Due to their automated asset selections, which depend on the answers you provide in a questionnaire, these are suitable for new investors or those who prefer a hands-off approach.

You should consider robo-advisors if you have little money and do not want to pay too much to invest it. That is because the automated platforms tend to accept lower minimum deposits while charging less for their services.

5. Broker-Dealers

Broker-dealers not only execute trades on behalf of their clients but also on their own behalf. Some work as discount brokers, while others fall under the full-service broker category.

Securities Brokerage: Protection

The Securities Investor Protection Corporation (SIPC) will protect your cash and securities if you trade through regulated brokerage firms. That protection will cover up to ​$500,000. And that includes $250,000 protection for any cash within your investment account regardless of your residency or citizenship status.

So you may want to research and come up with a regulated brokerage firms list under SIPC before settling on a trading platform.

Investing in securities is an excellent way to grow your wealth. But it helps to find a regulated brokerage firm to do business with to safeguard your money. Also, it would help if you considered the overall costs of investment transactions compared to what you make and the services you receive before deciding on the best broker for your needs.