If you read the news about the various financial markets in the country or even if you read any business newspaper or watch any business bulletin, then you must have come across the word brokerage firms or Brokerage companies. If your answer is no, then don’t worry as we are here to tell you about them. Today in this article, we will let you know whatever you should know about brokerage firms, whether you are an active market investor or whether you are a layman to this field who just wanted to know about them. So, without any delay let’s just start the discussion.
What are Brokerage companies or Brokerage firms?
A brokerage firm is nothing but just a middleman which connects the sellers and buyers, in order to facilitate a transaction. Brokerage firms or companies provides their specialized services in order to ensure that the transaction is smoothly conducted and charges a compensation for the same in the form of commission. This commission is either a specified percentage of the transaction amount or a flat fee, which is charged once the transaction is successful or completed. For example, take a case of an investor who has given a trade order for stock which now has been executed. If this transaction was supported by a brokerage firm, then he has to pay a brokerage fee to the brokerage firm for company’s efforts to complete the trade transaction.
The real estate industry also uses the same concept of the brokerage firms for facilitating the transaction. Here different parties involved in a transaction are usually represented by different brokerage firms. At the time of completion of the transaction, the commission is divided among the involved brokers.
Types of the brokerage firms
There are different types of brokerage companies which operates in the financial markets and offers different kinds of the products and services. Following are the major types: –
- Full-service brokerage firm: A full-service brokerage company helps us by assisting us with a professional financial advisor who usually manages our all investment related decisions and also provides us the ongoing support and advice. Such brokers are a bit more expensive to hire as they offer us the specialized expert services.
- Discount brokerage companies: Earlier, discount brokerage companies used to operate through the brick and mortar facilities, but now many of them offer the online trading platforms that allows to make the trading decisions on your own. This is called self-directed investment or do it yourself investment. Such companies charge lower commission for their services as in such services there is a partial client involvement. These are highest margin brokers in India.
- Robo-advisors: This is an era of digital financial advisory systems and robo-advisors or automated investment advisory platforms are the newest form of them which offers various kinds of investment management services to us. These services are carried out with the help of algorithms with minimum human intervention, that too at a very low cost. These robo-advisors have definitely changed the brokerage service sector on a huge level.
Above mentioned were the major types of the brokerage companies which ensures the highest exposures in India and now you must be clear about the basic concept of these important part of our financial markets.
