Stockbrokers buy and sell stocks on behalf of investors. Many investors opt to open an account with an online stockbroker, which may charge lower fees.
A stockbroker is a person or company authorized to buy and sell stocks or other investments.
What Is a Stockbroker?
If you want to buy stocks, you will almost always need a stockbroker — essentially, a middleman — to place those orders on your behalf.
These days, many people open a brokerage account with online stockbrokers
rather than working with a person. Often called discount stockbrokers
, online brokers are typically less expensive and allow you to buy or sell stocks
and other investments directly through their websites or trading platforms.
What does a stockbroker do?
To understand what stockbrokers do, it helps to have some quick background about the stock market.
Stocks are traded through market exchanges, like the New York Stock Exchange
or the Nasdaq
. These exchanges are like a supermarket for stocks: Companies list their stock with an exchange, and the exchange connects buyers and sellers, imposes rules and regulations, and tracks the demand for each stock, which influences the stock’s price.
But the average investor can’t just walk into an exchange and pluck a stock off the shelf. Instead, you need a stockbroker, a company or person who is licensed to execute trades with the exchange. Brokers generally must be registered with the U.S. Securities and Exchange Commission.
In some cases, stockbrokers also provide advice on which stocks you should buy and sell.
However, stockbrokers should not be confused with financial planners, who tend to offer more holistic guidance on your financial situation.
How do stockbrokers make money?
Stockbrokers are typically compensated through a commission on each trade. That means you’ll pay the broker a commission when you buy or sell a stock.
You’ll pay more to work with a human stockbroker at a full-service brokerage firm, and less to manage your own brokerage account and execute trades through a discount broker like E-Trade or TD Ameritrade. Most discount brokers charge between $5 and $7 per trade.
How do you find a stockbroker?
These days, it’s easy to find a stockbroker. Most investors should opt for a discount broker, due to the cost savings and ease of placing online orders.
To find the best online broker
for you, look for discount brokers that require a low minimum investment and charge no ongoing account fees. If you’re new to investing, consider choosing an online broker that offers educational resources — many have libraries of how-to content on their websites to help you get started.
Once you choose a broker, you’ll open a brokerage account, which is an investment account. You need a brokerage account to buy or sell stocks or other investments, like mutual funds. The broker will walk you through the process of opening an account, which takes minutes and is typically completed online.