Stock broker

From open-encyclopedia.com - the free encyclopedia.

A stock broker or stockbroker or stock brokerage is someone or a firm who performs transactions in financial instruments on a stock market as an agent of his/her/its clients who are unable or unwilling to trade for themselves.

Stockbrokers also sometimes or exclusively trade on their own behalf, as a principal, speculating that a share or other financial instrument will increase or reduce in price. In such cases the term broker makes little sense and the individuals or firms trading in a principal capacity sometimes call themselves stock traders or simply traders.

The following is the case in the UK, other jurisdictions are thought to have similar rules.

When acting as an agent, the stockbroker charges the client a flat fee and/or a percentage-based commission for undertaking the trade and the price quoted the client must be the best price available in the market.

When acting as a principal, the trade could be with another market participant or one of the stockbroker's clients. When trading in a principal capacity with a client the broker is obliged to inform the client and no commission is charged.

Since the 1980s stockbroking firms have also been allowed to be market makers as long as the appropriate chinese walls are put in place.

With the advent of automated stockbroking systems on the Internet the client often has no personal contact with his/her stockbroking firm. The stockbroker's system performs all the stockbroking functions: it obtains the best price from the market and executes and settles the trade.