Stockbrokers trade shares and other securities on behalf of investors. They are professionals working in a regulated industry generally known as the “stock market.”
Only a stockbroker can execute transactions at a stock exchange, a location where stock trading occurs. So an investor must use a stockbroker to buy or sell shares of any kind. The stockbroker, in addition to buying or selling on the client’s instructions, can also advise the investor, or work freely on behalf of the investor.
In the United States, stockbrokers must pass the FINRA General Securities Representative Examination and be associated with a registered brokerage firm. In the United Kingdom, stockbrokers must obtain the XII (Securities and Investment Institute) Certificate in Securities by passing two exams – one on financial regulations and the other on securities and derivatives.
Stockbrokers are regulated by laws that require them to look out for the best interests of their clients and that require loyalty to the client. The stockbroker must always disclose all relevant information including risks to the client, and must never engage in transactions on behalf of the client without authorisation for trading.
The stockbroker must make suitable recommendations to the client taking into consideration the client’s economic status, goals and ability to absorb loss. Stock brokerages are required to maintain an oversight system to ensure their brokers comply with all regulations.
Stockbrokers today often have advanced degrees in finance and business that add to their qualifications. The benefits of using a stockbroker include receiving advice from someone with knowledge, experience and training in the field. As professionals, stockbrokers work full-time in capital markets and thus will be more familiar with possible risks and benefits than the lay person.
However, while there are benefits to using a stockbroker, there can also be risks. Unfortunately, not all brokers play by the rules. Cases of stockbroker fraud are not at all uncommon. Also, some brokers may pay most of their attention to big investors, and may not invest the necessary time or energy on smaller portfolios. So, often it is a matter of shopping around for the right broker.