Love them or loathe them, brokers are an important part of almost every investment process. Historically, brokers were there to enable people to access the financial markets. In the online age, meanwhile, the sorts of websites that offer financial instruments are often described as “brokers” now – though personal service is often left out in an age of instant purchasing.
Many people, however, are unsure about what exactly it is that brokers do, or what the value of them is – and many people are also uncertain what their broker should provide. As a result, they may make poor choices when it comes to hiring one for their investment plans. This quick guide will explain just what a financial broker does and what to look out for if you’re in the process of engaging the services of one.
What is a broker?
Put simply, a broker is a person or an organisation who organises the purchasing and selling of investment assets on behalf of a client. In most cases, they take a commission of some kind – either proportionate to the amount invested, or a flat fee – on the transaction. Brokers exist in a number of formats. Professionals with the title “broker” are individuals who perform this task, and one of the most famous varieties is the “stockbroker”. Some brokers provide advice to their clients in the manner of a financial advisor, though lots of them don’t do this and instead simply do the legwork of buying and selling.
Are brokers necessary?
Historically, brokers were an essential part of any financial markets transaction – simply because there was little alternative for an investor. Brokers had access to the markets, while ordinary people didn’t, and as a result, going through them was vital. In the internet age, things are a little different.
It’s certainly now easier to buy directly, and there are all kinds of other ways to access assets – such as peer-to-peer-powered cryptocurrency purchases. But having a broker – either an online one or an in-person one – can still offer benefits. Brokers do reduce some of the risk involved with investing. Traders are constantly vulnerable to fraud, so having a respected and legitimate broker in place means that there are two pairs of eyes monitoring all potential instruments – and hence there should be a lower risk of problems such as fraud occurring.
Many newbie traders also find it surprisingly difficult to actually purchase an asset as there can be complex administrative hurdles to jump through. Given that brokers do this sort of thing all the time, it’s easier and more efficient for them to do it on behalf of many clients rather than have all clients do it individually.
What qualities should a broker offer?
The characteristics that a broker needs to have in order to satisfy their clients can vary from situation to situation. For many traders, the primary quality that a broker needs to have is a competitive fee range. In some circumstances, that will look like low fees: this is especially true if the broker has a “bare bones” operation and doesn’t offer added benefits such as the latest, most sophisticated trading software.
For others, the fee structure is more important. Investors with large and aggressively growing portfolios may well feel that it’s more important for their broker to provide a flat fee rather than take more cash as their portfolio’s value rises, for example. AvaTrade minimum deposit rules show that it’s worth finding a broker who accepts your available investment capital levels.
Brokers can have many other qualities. Some of them are able to provide access to the lat est trading technology such as MetaTrader 5 – so for online traders, this could be a crucial dividing line between one broker and another. Brokers also differ in terms of the instruments they offer. Some brokers offer a wide range, including everything from derivative-based products such as contracts for difference to foreign exchange pairs and more. Others specialise, and may only be able to provide niche instruments such as particular commodity groups.
Brokers, then, are largely still necessary in the modern world for a number of trading-related tasks. Hunting out the right broker for your needs isn’t always easy, not least because there are so many potential characteristics you might need. However, by deciding on some red lines – such as price and technology offerings – you’ll be able to narrow down the list and find a broker that works well for you.