When you want to start investing in the stock market, it is necessary to go through a financial intermediary. Choosing the latter is an important decision that can have a considerable impact on the performance of your portfolio. When starting out, attention does not immediately focus on the costs associated with the purchase or sale of securities. However, the latter can considerably reduce the performance of the investments made.
The financial intermediary is an investment service provider (PSI) authorized to receive, transmit and carry out orders on the financial markets in return for a commission. This financial intermediary is called a broker or a broker.
For a very long time, the banks were the only financial intermediaries for an individual who wanted to invest. Thanks to technological developments, new brokers called online brokers have appeared and have enabled investors to access the foreign financial markets via the Internet.
There are now many financial intermediaries. The abundance of supply makes it difficult to choose.
The broker may only be authorized to exercise the sole activity of receiving and transmitting orders on your behalf by electronic means. He can then either transmit the orders received to an authorized service provider for their execution, or directly execute these orders on the market if their authorization authorizes them and become a member of the market. The need to use additional intermediaries results in additional transaction costs. Thus, the broker who has direct access to the markets, without an intermediary will offer lower costs.
Types of brokers
There are different kinds of broker. One can for example find a stock broker, forex broker, full service broker and online broker. Here, the article is focused more on the online broker. Even if there are so many classes of brokers, they all aim to negotiate affordable prices for their customers by trying to play on quantities with the producer.
What is a forex broker?
A forex broker or broker in currency trading, today designates an intermediary who buys and sells one or more currencies on behalf of his client in exchange for a commission. We can consider him as a seller of financial assets.
Traditionally, foreign currency has been traded on the interbank market by larger customers, such as importers, exporters, banks, and multinationals, who had to trade currency for commercial purposes and protect themselves against international currency risks.
Nowadays, it is possible for individuals to enter the forex market through brokers.
How an online broker works
A client who uses an online brokerage will connect to the trading platform, for example, ETFinance provided by his broker. He will select the market in which he wishes to trade, as well as the type of order, the price and the quantity in a few clicks. When the order looks good, the trader can then buy or sell his order.
The order use to be then directed to the trading platform and matched with other similar orders. A trading order is usually executed instantly and the trader receives confirmation on his account of the execution.
Operation of independent brokers
Independent brokers were created to accommodate financial advisers who hold securities licenses and require administrative support for services such as compliance and transaction execution. These companies usually turn to more experienced advisers who generate high income streams from sophisticated clients.