Related Definitions


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Who are brokers?

Brokers are the intermediaries who facilitate the trading of securities in the capital markets. A broker can be an individual or an incorporated entity but should be a member of the exchange. Stock exchanges only execute orders received from the registered entity. Brokers are a crucial part of capital markets providing access to market participants. 

As a market participant, they can provide a trading facility on a range of securities, including bonds, equities, derivatives, foreign exchange. In lieu of facilitating these trades, brokers charge commissions, but the market now also has brokers charging zero-commission on transactions. 

Capital market brokers also provide a host of other services to customers such as research, platform, real-time data, wrap services, margin, investment plans etc. They can act in various capacities to facilitate market, including a dealer, broker, and distributor. 

Licence requirement to become a Broker

Every country has different educational needs and regulations for becoming a broker. There are a number of officially recognised qualifications and licenses available. A call for which licence to apply and what to study depends on individual goals. These licenses are regulated by designated authorities such as

  • In Australia, an individual/entity should be registered with the Australian Securities and Investment Commission (ASIC).
  • In New Zealand, an individual/entity should be registered with the Financial Service Providers Register (FSPR).
  • In Canada, an individual/entity should be registered with the Canadian Securities Administrators (CSA).
  • In the UK, an individual/entity should be registered with the Financial Service Authority (FSA).
  • In the US, an individual/entity should be registered with the Financial Industry Regulatory Authority (FINRA).

What are the types of capital market brokers?

Full-service brokers: A full-service broker is usually a large company, often an investment bank. They service both institutional and retail clients. A host of services and asset classes are available to trade with full-service brokers such as investment advice; financial planning; retirement planning; market research in addition to a vast range of investment products.

Full services brokers provide all services under one shelter, a one-stop shop for investors. However, they usually charge higher commission as compared to other brokers in the market. With the growing interest in the stock market, there exists intense competition among several players. 

A small or new investor may not get the full utility of high-quality platforms provided by full-service brokers. In contrast, professional and experienced investors prefer using full-service brokers due to a range of services and capability they offer. 

Discount brokers: Discount brokers are like disruptors in the securities broking industry. They mostly restrict themselves to execute different types of trades on behalf of the clients. They charge a relatively lower commission on trades and does not provide investment advice.

Discount brokers are a good option for investors who are new to the markets, want something for lower cost, or who do trade on their judgement without any outside help. Institutional investors are likely to stick with full-service brokers because of scale and capacity. 

Retail investors prefer using discount broking service as it is economical compared to full-service brokers. Discount brokers have been innovating and improving the accessibility for retail market participants through online broking and compact platforms like mobile phone applications. 

Most of the time discount brokers will only provide certain types of asset classes. However, the growing scale and market share may lead to the introduction of new asset classes and services to the customers. 

Prime brokers: Prime brokers are at the top of the broking market. Investment banks often act as prime brokers in the market. They facilitate large scale transaction access and act in various capacities, including counterparty, broker, dealer, market marker, depository, and custody. 

With a growing scale, products and need of market participants, prime brokers have built the floor for large market participants like hedge funds. 

Prime brokers and associates also engage in structured and tailored products for market participants, and new products are innovated on demand. They are mostly involved in large scale market transactions like Government bond auctions, corporate bond pricing etc. 

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