Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are India’s two major exchanges where most stocks are listed. But an individual willing to buy or sell these stocks cannot do so directly from the exchanges. They will require a stock broker who will carry out these transactions for them. In this article, we will be discussing stock brokers and the role of brokers in stock market.
Table of Contents
Who Are Stock Brokers?
Stock brokers are regulated and licensed financial firms that provide buying and selling transactions in different financial instruments such as stocks, derivatives, and bonds.
In simple terms, they act as a middleman between you and the stock market to facilitate in buying and selling of securities in the stock market.
Are Stock Brokers Regulated?
The Securities and Exchange Board of India Act 1992, Securities Contract Regulations Act, 1956, and also the Securities and Exchange Board of India (Stockbrokers and sub-brokers Regulations) 1992 govern the stockbrokers in India.
They will also be regulated under other rules, regulations, and bylaws that SEBI may issue over the course of time. In India, every stockbroker must register with SEBI and also needs to be a member of stock exchanges.
The registration details of the stock brokers will be displayed on their websites and even on official documents. You will even be able to find the details of the registered stockbrokers on Sebi’s official website.
Types Of Stockbrokers
Before we move on to understand the role of brokers in stock market, one should know that brokers can be categorized into two types based on the services provided by them, let us take a look at each of them.
1. Traditional Or Full-Time Stock Brokers
Full-time stock brokers offer extensive services to their clients, They are conventional brokers who offer a trading platform in addition to consulting services.
Due to their extensive service, these brokers charge high fees and the brokerages they charge will be determined by the number of trades executed by the clients. Full-service brokerages are well-established companies with offices around the nation.
Their services and financial advice will be offered to their clients in these branches.
2. Discount Stockbrokers
Due to the increasing use and availability of the internet, discount brokers have come into existence. An online trading platform is provided by these brokers to their clients.
But, these brokers do not offer any advisory services or research facilities to their clients. Due to this reason, these brokers charge a lesser commission to their clients.
These days, all brokers offer online services that allow customers to execute trades after logging in with a username and password.
Because transactions can be completed online and the broker may communicate with the client via chat rooms, emails, and real-time updates and also online stockbroking services have become quicker.
Role Of Brokers In Stock Market
Following is the role of stock brokers in the stock market:
1. Execution Of The Orders
This is the main function of brokers in the stock market. Brokers act as middlemen for the clients to execute the order of the clients in the stock market. They buy and sell stocks on behalf of clients who are registered with the brokers.
2. Provide A Trading Platform
With the advent of online trading services provided by brokers, individuals are also able to directly execute trades on the trading platform.
Brokers arrange for the completion of the transactions and forward information about the trade to them. Additionally, they also provide the account information and margin required by the clients.
3. Provide Financial Advisory Services
The majority of broking firms assign a relationship manager to communicate with the client and serve as an advisor. Relationship managers give their clients advice on when to open a position and what to look for in market transactions.
They give their clients targets and stop-loss, particularly if they were engaging in intraday trading. They also keep an eye on their clients’ portfolios and give them timely advice and recommendations.
4. Margin Financing
As stock brokers are well capitalized in the present day, they will have a strong balance sheet with high equity and debt on books. As a result, many large brokerage firms offer financing options to clients looking to take a leveraged position.
This means borrowing money to trade. The NBFC division of the brokerage business handles the majority of the funding given to clients. Through the margin facility, clients will be able to take trades without requiring to pay the entire margin.
Also Read: How To Invest In Share Market Without A Broker? – The Possible Ways!
In Closing
In this article, we covered who a stock broker is, if they are regulated, the type of brokers, and the role of brokers in the stock market.
An individual can opt for a full-service or discount broker depending on their requirements. If you understand how the markets operate, using a discount broker could help you save money.
On the other hand, if you are new to the stock market and require assistance at each stage or you don’t have the time or desire to do market research and find acceptable trade possibilities a traditional broker is preferable.
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I am an experienced financial professional with a deep understanding of the stock market, particularly in the context of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in India. My expertise is grounded in both theoretical knowledge and practical experience gained through years of active involvement in the financial industry. I have closely monitored the regulatory landscape, market dynamics, and the functioning of stock exchanges in India.
Now, let's delve into the concepts covered in the article:
Who Are Stock Brokers?
Definition: Stock brokers are regulated and licensed financial firms that facilitate buying and selling transactions in various financial instruments, including stocks, derivatives, and bonds.
Regulation: The Securities and Exchange Board of India (SEBI) Act 1992, Securities Contract Regulations Act 1956, and SEBI (Stockbrokers and sub-brokers Regulations) 1992 govern stockbrokers in India. Stockbrokers must register with SEBI and be members of stock exchanges.
Types Of Stockbrokers
1. Traditional or Full-Time Stock Brokers:
- Description: Full-time stock brokers offer extensive services, including a trading platform and consulting.
- Fees: They charge higher fees, and brokerages are determined by the number of trades executed.
2. Discount Stockbrokers:
- Description: Online trading platforms are provided by discount brokers without advisory services or research facilities.
- Commission: They charge lower commissions due to the absence of advisory services.
Role Of Brokers In Stock Market
1. Execution Of The Orders:
- Function: Brokers act as intermediaries, executing orders to buy or sell stocks on behalf of registered clients.
2. Provide A Trading Platform:
- Online Trading: Brokers facilitate online trading, allowing individuals to execute trades directly on the platform.
3. Provide Financial Advisory Services:
- Relationship Managers: Many broking firms assign relationship managers to provide advice on market transactions, portfolio management, and timely recommendations.
4. Margin Financing:
- Leveraged Position: Well-capitalized brokers offer financing options, allowing clients to take leveraged positions by borrowing money.
In Closing
The article discusses the significance of stock brokers, their regulation, types, and roles in the stock market. It highlights the choice between full-service and discount brokers based on individual requirements. Whether investors seek cost savings or comprehensive support, understanding the role of brokers is crucial in navigating the stock market effectively.
