What is a broker?

A broker is an independent, licensed company (financial service provider), which is usually subject to financial supervision and which carries out financial transactions on behalf of third parties. These transactions involve a variety of asset classes, including stocks, foreign exchange (Forex) and many others. A broker usually charges a commission for executing an order. Some brokers will provide you with market data and advice on the products you want to buy or sell, depending on whether it is full service or just order execution. A broker must be licensed to advise you and execute a sale. He will only execute trades on your behalf if you authorize him to do so. A broker account is an account for, among other things, securities, foreign exchange. You need it so that the broker can book securities, foreign exchange directly into your account (clearing, settlement). They are also called broker accounts or securities accounts.

Why is a broker needed?

In order to buy and sell financial products, you need a licensed broker with the appropriate approval from the Financial Regulator. As a private individual or company, you cannot place your buy and sell orders directly on the stock exchange. Banks also often use brokers. Natural or legal persons (private investors), including institutional investors, cannot place their buy or sell orders directly on the stock exchange, but must contact banks or brokers. As registered financial service providers, brokers are financial intermediaries (intermediaries) between investors and stock exchanges. Therefore, these financial intermediaries are subject to the same strict supervision of the financial supervisory authority as banks. In almost all countries, brokers are subject to strict banking and financial supervision. Investor and creditor protection also applies here in the EU.

Legal

Brokers are legally classified as commission agents because they carry out orders in their own name and for third-party account and carry out the financial commission business under banking supervisory law and exercise the procurement and sale of trading objects and financial instruments.

Broker Types

There are four types of brokers – stock brokers, forex brokers, full service brokers and discount brokers. While all act as an intermediary between you and a third party, they provide different services. Some brokers are execution brokers only, while others execute your trades, advise you and manage your portfolio.

What is a stock broker?

A stock broker, also known as an investment broker, carries out the buying and selling of stocks. Since retail investors cannot buy shares directly on the stock exchange, you need a stock broker. The broker will buy and sell stocks in which you wish to invest money on your behalf.

What is a forex broker?

A forex broker, also known as a retail forex broker, buys and sells currencies on your behalf. The benefit of a forex broker is 24-hour market access and the ability to trade forex pairs anywhere in the world. Forex brokers try to reduce their costs as much as possible in order to remain competitive in the market. If you trade through a broker, you still pay some fees, such as B. the spread. Transactions in the forex market are done in pairs, which means that you choose a currency pair that you want to trade – e.g. B. EUR/USD – buy or sell.

What is a full service broker?

A full-service broker (or financial advisor), offers additional services such as retirement and investment planning, tax advice, and research. This type of broker will be a good choice for you if you don’t have time to develop a financial plan yourself. The commission rates of the full service brokers are slightly higher than the commissions of other brokers. This is due to the broader range of services they offer as opposed to other brokers.

What is a discount broker?

A discount broker is a broker who charges lower commissions because they only process your trades and do not offer advice or any additional services such as research or planning related to your trades. The more trades a discount broker executes on your behalf, the lower the cost. A discount broker will not manage your portfolio.

Are Broker Accounts Safe?

Licensed brokers usually keep segregated accounts. A segregated account is an account that is kept separate from the assets of the capital investment company (also with brokers) in the name of the investor. Because the segregated account remains the property of the investor, the account is protected against misuse and insolvency on the part of the broker. In the event of payment bottlenecks or the insolvency of a broker (online broker), you don’t have to “fear” about the security of your securities portfolio: A broker only manages the securities of their customers, but has no other ownership rights to them. The stocks are yours alone. The advisor (dealer or trader) can trade on the client’s segregated account but cannot dispose of the assets as such. Copy trading is subject to the automatic appending (copying) of a trader’s trading strategy. The customer funds are legally separated. There is no entitlement to customer money from the dealer. Deposits and withdrawals can only be carried out by the customer himself, under his own direction and responsibility via the broker and his account. Some brokers have automatically insured the accounts, please check directly with the broker of your choice.