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What is a stockbroker?

My Investments

What is a stockbroker?

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Thanks to movies such as The Wolf of Wall Street, The Pursuit of Happyness and The Big Short, when many of us think about stockbroking we think about a buzzing office floor with phones ringing off the hook and men in fancy suits standing and shouting “buy” on the phone or men sitting at a desk facing what seems to be a billboard of different computer screens filled with numbers and graphs. So, what is the fuss about? What do these guys actually do?

What do stockbrokers do?

As the name suggests, a stockbroker describes a middleman/agent (broker) who buys and sells securities (stocks and bonds) on a stock exchange on behalf of clients. Public companies’ shares are usually bought and sold at the Johannesburg Stock Exchange (JSE). If you want to buy or sell shares, you cannot go directly to the JSE.  You will need to get a broker who will act on your behalf by placing your orders (number of shares and the price) to the JSE. Stockbrokers make their money from charging commissions on each trade and broker fees.

Types of stockbrokers

Execution-only stockbrokers

Execution-only stockbrokers never suggest what to buy or sell. In fact, they do not offer any advice to clients at all. They are therefore more suited for experienced investors who know what to buy and sell. Execution-only stockbrokers often carry out their trades over the phone or online. Discount and online brokers fall into this category.

Advisory stockbrokers

As the name implies, advisory stockbrokers offer clients advice on which assets to buy or sell. They can also manage your investment portfolio with full discretion through services such as financial planning, asset management and banking services. Advisory stockbrokers execute their trades through various platforms including online and mobile. Since the advisory stockbroker is so involved in the investment life of the client, most clients have the option of calling their personal broker directly. Full-service brokers and money managers fall into this category of stockbrokers.

If you’re interested in this career path, then read more.

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